Bank of England’s monetary policy committee votes unanimously to keep interest rates at rock bottom as it signals concern over EU referendum and pay growth
Interest rates at the Bank of England will be kept at a record low of 0.5 per cent for the next month after another unanimous vote.
The MPC is concerned pay rises might be lower due to subdued inflation, the minutes of the meeting revealed.
The MPC said empirical evidence on inflation expectations and their impact on wages “suggested that some effect was likely to be present in the current wage data”.
Slower pay growth means lower costs for businesses, who can keep prices lower than otherwise, holding down inflation further.
The MPC sees a number of risks to growth, including the UK’s EU referendum, which it said may “delay some spending decisions and depress growth of aggregate demand in the near term”.
It said the upcoming referendum had weighed on the value of the pound but left other asset prices untouched.
However it still believes GDP will grow at “around average rates” over the next few years.
Inflation was 0.3 per cent in January, well below the Bank’s two per cent target.
Low inflation is due mainly to large drags from energy and food prices, which the MPC expects will fade in the coming months.
Interest rates have been at record lows since March 2009. Since then, the Bank of England has also conducted £375bn of asset purchases as part of its so called quantitative easing programme.
The MPC also voted to keep the stock of asset purchases unchanged and recently announced it would not consider selling them off until interest rates had reached two per cent – that’s another six rate hikes.