BoE keeps rates unchanged by 8-1 vote, sees downside risks

The Monetary Policy Committee voted by eight to one to keep Bank Rate at 0.5% and was unanimous in its decision to hold the size of the Bank of England´s asset purchase facility at £375bn, as expected.

Ahead of Thursday´s decision there had been speculation in markets that either Martin Weale or Kristin Forbes might have joined Ian McCafferty in calling for an immediate interest rate hike.

In its post-meeting statement the MPC highlighted that about four-fifths of the difference between the latest reading for the consumer price index, at -0.1% year-on-year, and its target of 2% was the result of falls in energy, food and other imported prices.

It also described the approximately 1% reading on 'core' inflation as subdued.

Domestic cost pressures were subdued and the outlook for growth had weakened since the August Inflation Report. Indeed, "there remained downside risks to this outlook, including that of a more abrupt slowdown in emerging economies," the BoE said.

Nonetheless, domestic momentum remained "resilient".

The above was despite the fact that markets were now discounting an even more gradual pace of tightening at the time of the last IR.

McCafferty was the lone dissenter from the MPC´s decision, having voted for a 25 basis point increase in Bank Rate.

"With respect to the MPC members favouring unchanged interest rates, the minutes noted that there were varying opinions about the outlook for growth and inflation. However, there seemed little overall inclination for a near-term interest rate hike.

"Based on market expectations that interest rates would start to edge up around late-2016/early-2017, consumer price inflation is seen marginally above its 2.0% target rate in two years’ time and then rises a little further above it. This suggests that interest rates need to start rising a little earlier than the markets are expecting, but not by much," Dr.Howard Archer, chief UK+European economist at IHS Global Insight said.

"The “Super Thursday” announcements from the MPC were on the whole quite dovish, with the Committee signaling that it is still in no hurry to raise interest rates. We remain comfortable with our view that rates will not rise until Q2 of next year," chipped in Vicky Redwood, chief UK economist at Capital Economics.

As of 1245 GMT sterling was down by 0.61% versus the Greenback to 1.5292.