Bank of England leaves interest rates on hold
- Credit: PA
The Bank of England left interest rates on hold today as it forecast a slowdown for UK economic growth in the third quarter amid increasing risks from turbulent global conditions.
Members of the bank’s Monetary Policy Committee (MPC) voted by a margin of 8-1 to leave rates on hold at 0.5%, where they have been since 2009, mirroring the voting numbers last month.
Minutes of the latest MPC meeting revealed that the bank has now downgraded its forecast for UK gross domestic product (GDP) growth in the third quarter from 0.7% to 0.6% after weaker than expected recent economic data. This would be a slowdown from 0.7% growth in the second quarter.
Meanwhile the MPC found that overall risks from the world economy had “probably increased” amid signs of slowdown in China, which has caused severe market turbulence in recent weeks, and the prospect of a coming interest rate hike in the US.
UK economic recovery and an acceleration in wage growth in recent months has added to the argument for a rate rise to keep inflation below its 2% target in coming years. But the slide in inflation to near zero has eased any immediate pressure on policymakers for an increase in rates.
Today’s minutes showed bank officials judged the upturn in wage costs was still not strong enough to see inflation returning to that level.
However, one MPC member, Ian McCafferty, judged that there were signs of building inflationary pressure, while it was “premature” to assume that turbulence in China would have an effect on this. He voted to raise rates to 0.75%. Some of the other members also saw risks of higher inflation but still voted to leave rates on hold for now.
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Markets have pencilled in a UK rates rise for early next year, while there is also speculation that in the US, rates could be lifted by the Federal Reserve possibly as soon as next week.
A UK rate rise will mean greater borrowing costs for mortgage holders and other large loans, but provide some relief to savers whose nest eggs have been eaten away by low rates.