UK interest rates still at record low
August 6, 2015, 2:00 pm

UK interest rates have been held at 0.5% again by the Bank of England`s Monetary Policy Committee.MPC members voted 8-1 to keep rates on hold, with only Ian McCafferty voting to raise rates.The decision marks the 78th consecutive month of record-low interest rates. In its report, it said the outlook for inflation was "muted".Many economists had anticipated that two or three policymakers would vote for a rate increase.But a collapsing stock market in China and ongoing talks over Greece`s debts mean the outlook for global growth is muted."Those analysts who predicted a rate rise this year may be on brink of having to rip up their predictions," said Aberdeen Asset Management Chief Economist Lucy O`Carroll.The central bank said it expected inflation to be back to its 2% target in two years` time.Standing in the way of the Bank`s desire for higher inflation is a drop in oil prices and energy costs in general, as well as a rise in the value of sterling, which the Bank estimates has risen 3.5% since May.This Thursday marks the first time the Bank has released the monthly rate decision at the same time as the minutes of the Bank`s Monetary Policy Committee meeting, without the hitherto normal fortnightly gap, and has been named by pundits as Super Thursday."It would have been imprudent to push through a rate rise at this moment when our economic recovery remains in need of care and encouragement," said John Longworth, director general of the British Chambers of Commerce."Rates will eventually have to rise and when they do, it should be done slowly and steadily. Until that moment, the Bank of England is right to keep interest rates at current levels."The 8-1 decision follows months of unanimous decisions to keep rates where they are.The UK`s bond-buying programme is also frozen at £375bn.The pound fell 0.6% against the dollar to $1.5509 and the euro rose 0.7% to 70.38 pence.

Analysis:

Robert Peston, BBC economics editorThere is what to many will look like a contradiction at the heart of the Bank of England`s voluminous pronouncements on inflation and interest rates.On the one hand, it expects price changes to be zero or even negative - or well below the 2% target - for longer than it predicted back in May (and actually nought over the next couple of months).But the Bank also expects inflation to return to target on the basis of interest rates that could rise a bit faster next year than it had been anticipating.That said, don`t panic if you have a mortgage - the Bank`s forecasts are based on the assumption that the interest rate it controls, Bank Rate, will rise just 0.25% in the first four months of next year and could double from 0.5% to 1% by the end of 2016.So if banks and building societies simply pass on this increase in their borrowing costs to customers, mortgage rates would rise by 0.5% next year.

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