Bank of England lowers UK growth outlook to 2.7 per cent as MPC votes 8-1 to hold interest rates
The Bank of England's monetary policy committee (MPC) lowered their UK growth outlook to 2.7 per cent from 2.8 per cent today, as its more hawkish members failed to be convinced of the merits of a rate rise.
Although some economists had expected Kristin Forbes or Martin Weale to join the ayes, Ian McCafferty was left alone voting to increase interest rates from their historic low of 0.5 per cent.
Read more: The Bank could hike rates before the Fed – but only if it ignores China
The minutes of the MPC meeting remained dovish, saying “inflation is likely to remain lower than previously expected until late 2017”.
Inflation measured by the consumer price index (CPI) stood at –0.1 per cent in September, and the minutes said “CPI was likely to remain around this level until the end of the year”.
The low-level inflation was predominantly due to falls in commodity prices, particularly oil, and the past appreciation of sterling, which is expected to be a persistent influence.
“Although sterling had depreciated a little in recent months, the relatively high level of the exchange rate meant that lower import prices were still pulling down on CPI inflation,” the minutes said.
Meanwhile, the November Inflation Report set out that while wage and productivity growth have picked up since last year, both remain below pre-crisis levels, meaning they are below the rates consistent with inflation being at target.
It added that “taking all the evidence together, the MPC’s best collective judgement is that output remains slightly below its potential level, with slack broadly in the region of 0.5 per cent of GDP”, indicating the economy has room to expand before inflation picks up.
The MPC predicts that inflation will exceed the two per cent target in two years' time, and then rise a little further above it, but that the risks reflect global factors.
Risky assets had become less volatile on the month and their price had increased, leading them to become less of a concern. The same was said of China, as growth had been in line with third-quarter projections, supported by the further easing of monetary policy.
However many emerging market economies have slowed markedly, causing more concern over their growth prospects.
Growth has slowed more sharply in Brazil and Russia than in much of Asia. Yet, the impact on the UK of a sharper slowdown in these economies remained unclear.
A strong sterling and weak global growth, however, is a risk to exports and inflation.
Ian McCafferty wanted to increase the rate by 0.25 percentage points due to his view that domestic costs will help inflation rise.
The Bank of England also said it will continue with its £375bn quantitative easing programme, but revealed it would not suspend it until the bank rate rises to two per cent.