ANKARA (AA): The Bank of England’s Monetary Policy Committee (MPC) on Thursday voted to hold its key interest rate at 0.5 percent.
The pound fell against the dollar to about 1.488 from around 1.460 after the announcement.
One committee member voted against the decision but the MPC voted unanimously to maintain an economic stimulus program which purchases £375 billion ($581.8 billion) in financial assets each year, the bank said in a statement.
The committee cited low inflation as the key element in the decision.
“CPI inflation fell back to zero in June. Around three quarters of the deviation of inflation from the 2 percent target, or 1½ percentage points, reflects unusually low contributions from energy, food, and other imported goods prices.
“The remaining quarter of the deviation of inflation from target, or one half of a percentage point, reflects the past weakness of domestic cost growth, and unit labor costs in particular.
“The combined weakness in domestic costs and imported goods prices is evident in subdued core inflation, which on most measures is currently around 1 percent,” a Bank of England inflation report statement said.
The MPC linked raising interest rates to an improvement in the inflation outlook.
“The committee intends to set monetary policy in order to ensure that growth is sufficient to absorb the remaining economic slack so as to return inflation to the target within two years,” the statement said.
While global growth is expected to expand at a moderate pace, the U.K. economy is seeing “robust” growth, the MPC added, with rising consumer demand and increasing business investment.
“Wage growth has picked up as the labor market has tightened and productivity has strengthened. Business and consumer confidence remain high, while credit conditions have continued to improve, with historically low mortgage rates providing support to activity in the housing market,” the statement said.
“The road to a U.K. rate hike seems long. It is now seen coming at June 2016 instead of May 2016 – far away in any case. The minutes and the inflation report also reveal a darker picture of the U.K. economy than expected,” analysts at Forex Crunch wrote in a note published after the announcement.
