While few economists expected a November base rate rise, there was speculation that the MPC’s solitary hawk Ian McCafferty would get some support. Instead it was another 8-1 vote to keep rates unchanged.
Markets have been surprised by the cautious message with a more downbeat outlook on global growth.
The MPC believes that inflation will breach its 2% target in two years, based on current interest rate forecasts, while CPI inflation is likely to remain below 1% until the second half of 2016.
For Anna Stupnytska, global economist at Fidelity International, the shift in the Bank’s stance should come as no surprise, bringing its views more in line with reality.
“As the Fed prepares to hike rates for the first time possibly as soon as December, the BOE should be more comfortable in following suit sometime next year, provided the growth picture does not deteriorate dramatically,” she said.
“But together with persistence of emerging market and currency-related headwinds, 2016 will bring new challenges for the UK, including fiscal tightening and uncertainty about the EU referendum.
“This means that once the first hike is out of the way, the pace thereafter is likely to be extremely slow. The BoE will have to continue treading with caution.”
While seeing today’s announcements as something of a “damp squib” for markets, Colin Morton, manager of Franklin UK Equity Income Fund, sees the Bank of England as being acutely aware of the size discrepancy between the UK and its international counterparts.
“Whilst the UK is steadily powering on, the unknown economic futures of Europe and China are impossible to predict but likely to be the threats which drag our economy down,” he said.
He added: “Inflation really should be at 2% at all times and it looks like it is unlikely to be the case for the next two years but it will be prudent in the future for it to get back to a decent level.
“Whilst this report card bodes well for the UK domestic situation, we are all too susceptible to outside influences and so need to pay careful attention to Europe, the emerging markets and beyond to really understand how the economy could fare in 2016.”
