The Bank of England has voted to keep interest rates at their current low levels for the time being. Only two members voted in favour of increasing the rate to 0.75%, with seven voting in favour of keeping rates at just 0.5%.
Continuing low levels of inflation were a key factor in the bank’s decision to keep rates where they are. There was, according to the bank’s minutes, a “material spread of views” on what the outlook was for inflation in the near future, and what the risks associated with interest rates were. However, even if through different reasoning, it emerged that the majority of members agreed that rates should be kept steady for the time being.
According to the minutes: “For most members, the outlook for inflation in the medium term justified maintaining the current stance of monetary policy.”
It seems that the two members who vote in favour of an increase were Martin Weale and Ian McCafferty. For many, this will not be a surprise. Weale and McCafferty have been consistently voting in favour of interest rate rises since August, and in the run-up to the meeting there was some speculation about whether they would continue this trend or not.
It was judged by the meeting that interest rates remaining lower than had been hoped for was “partly the consequence of a margin of spare capacity bearing down on domestic costs and prices.” This, according to the minutes of the meeting, created a definite possibility that expectations for inflation in the medium term would be lowered. The period for which inflation would stay low – specifically under the 2% level – could therefore be lengthened. 2% is the level of inflation which the bank currently hopes to try and maintain, and it was felt that continuing to keep interest rates down could help the situation.
October saw the annual rate of inflation rise to 1.3%, up from the previous month’s figure of 1.2% but still well below the hoped-for 2% level. Just last week, the Bank of England issued a warning that the next six months could see the rate of inflation fall as far as the 1% level.
The current interest rate of 0.5% has been in place since March 2009. The Bank has repeatedly decided against immediate increases in a hope that the low rate will facilitate recovery in the UK’s economy.
The Bank’s nine members voted unanimously on other issues, such as the decision to leave quantitative easing unchanged.