The Bank of England kept interest rates at record lows as policymakers said the UK economic outlook had weakened and inflation was likely to stay lower for longer.
Members of the Bank’s Monetary Policy committee (MPC) voted eight to one to keep rates unchanged at their historic lows of 0.5%, where they have now remained for more than six years.
The MPC’s decision comes amid increasing concern over the global economy, as well as signs of slower-than-expected UK growth.
Global stock markets have tumbled since the start of the new year after a run of poor economic data in China and interruptions to trading in Chinese stocks, which saw £85 billion wiped off the value of top flight firms on the London market last week.
Minutes of the latest MPC meeting showed the Bank believes UK growth has also been weaker than it predicted in November and that inflation will remain far below its 2% target for some time yet.
It lowered its outlook for gross domestic product growth in the fourth quarter of last year and first quarter of this year by 0.1 percentage points to 0.5% in each quarter. This follows growth of 0.4% in the third quarter.
The minutes showed the Bank believes “continued quarterly growth at rates of around 0.5% were likely around the turn of the year, a little weaker than the near-term outlook described in the committee’s November Inflation Report”.
Global stocks declined once more on Thursday, as fears around plunging oil prices and the outlook for global growth continued to weigh on markets.
The London Stock Exchange FTSE 100 Index was more than 1% down, while Germany’s DAX and the Cac 40 in France were both more than 2% lower.
The MPC said: “Recent volatility in financial markets has underlined the downside risks to global growth, primarily emanating from emerging markets.”
The MPC said its decision was also influenced by oil prices, with Brent Crude this week dipping below 30 US dollars for a barrel of oil for the first time in 12 years.
The Bank said it now expected UK inflation – currently at 0.1% – to rise more gradually, lifting to around 0.5% by the early months of 2016 and remaining around that level for several months.
The US Federal Reserve hiked rates in America last month for the first time in nearly a decade, as the US economy expanded strongly last year.
But Bank of England governor Mark Carney has already said a decision to raise rates in the US is “not decisive” for UK policymakers and a number of economists have pushed back their expectations for the first hike in Britain to 2017.
Ian McCafferty was the only MPC member to vote for an interest rate hike this month.
Martin Beck, lead UK economist at Oxford Economics, said: “Global economic uncertainty, falling commodity prices and a slackening in growth in gross domestic produce and wages meant that the MPC’s decision to keep policy on hold in January was a no-brainer.
“That Ian McCafferty remains in favour of an immediate rate hike was perhaps the most surprising outcome of the meeting.”
Recommended for you
