Bank of England keeps the bank rate at 0.5%

Interest rates in the UK will may at record low levels in 2016 and without a risk of an excessive inflation, says the published today quarterly inflation report from the Bank of England .

In September, twelve-month CPI inflation stood at-0.1%, slightly over 2 percentage points below the inflation target. Around four fifths of the deviation from the target reflects falls in energy,food and other imported goods prices, with the remainder reflecting subdueddomestic cost growth.  The combined weakness in domestic costs and imported goods prices is evident in subdued measures of core inflation, which are currently around 1%. 

The institution foresees the slowing of the global economy to balance consumer spending growth and productivity locally. Thus the consumer prices will remain under control and without increase in rates before spring in 2017. Apart, the high exchange rate of the pound also has a downward pressure on inflation, and it will take time before this effect lose power.

The outlook for global growth has weakened since the August Inflation Report.  Many emerging market economies have slowedmarkedly and the Committee has downgraded its assessment of their medium-termgrowth prospects.  While growth in advanced economies has continued and broadened, the Committee nonetheless expects the overall pace of UK-weighted global growth to be more modest than had been expected in August.  There remain downside risks to this outlook, including that of a more abrupt slowdown in emerging economies.

Regulators downgraded the forecast for economic growth in 2015 and 2016 respectively to 2.7% and 2.5%, while expectations for 2017 were revised upwards to 2.7%.

The MPC voted by a majority of 8-1 to maintain Bank Rate at 0.5%.  The Committee voted unanimously tomaintain the stock of purchased assets financed by the issuance of central bankreserves at £375 billion, and so to reinvest the £6.3 billion of cash flows associated with the redemption of the December 2015 gilt held in the Asset Purchase Facility.

According to the majority, price tension so far is not sufficient to justify an increase in interest rates.