Bank of England keeps rate and asset purchases unchanged

At its Monetary Policy Committee meeting on Thursday, the Bank of England maintained the bank rate at 0.5% and the size of its asset purchase programme at £375bn.

The interest rate has been held at this historically low level since March 2009.

Economists were confident the MPC would have remained unanimous in their vote to hold rates steady after concerns about deflation prompted Martin Weale and Ian McCafferty to drop their call for a rate hike last month, but the committee are expected to think more seriously about raising the rate later in 2015.

Further clues as to the committee's thinking will be gleaned from February’s Quarterly Inflation Report, due next Thursday, and Governor Mark Carney's next open letter to Chancellor George Osborne explaining why inflation has missed its 1% target.

"No move, no surprise...100% expected," said Howard Archer of IHS Global Insight.

"Furthermore, it seems highly likely that there was a 9-0 vote within the MPC for unchanged interest rates given the risk that current very low consumer price inflation - at a 14-year low of 0.5% in December and highly likely to have fallen further in January - could persist and markedly bring down inflation expectations and limit pay, thereby making it harder to get inflation back up to its target rate of 2.0%."

He added that it was "borderline" whether the Bank will begin to raise interest rates at the end of 2015 or holds fire until early 2016.

"We doubt the Bank of England will delay acting until mid-2016 as the markets have recently been expecting," he said.

Vicky Redwood of Capital Economics agreed: "An interest rate rise in the immediate future still looks very unlikely, but could well come back on the agenda later this year once the risk of a prolonged period of falling prices has diminished."

"With GDP rising by only 0.5% q/q in Q4 of last year, the recovery has slowed a bit more sharply than the MPC expected. And the UK still looks on the verge of deflation, especially now that all six of the main utility companies have announced cuts in gas prices averaging 4%."