The central bank’s Monetary Policy Committee (MPC) voted 6-2 in favour of holding rates yet again at a meeting on Wednesday and unanimously agreed to continue the bank’s £435bn quantitative easing (QE) programme.
The decision means interest rates have remained at rock bottom for one year in order to support the UK economy post Brexit .
It has been a year since the MPC first cut the rate to a historic low of 0.25% amid worries of economic collapse and a drop in corporate confidence in the wake of the Brexit referendum.
Matthew Brittain, investment analyst at Sanlam UK, said: “This marginally more dovish sentiment has no doubt been helped by the departure of long-time hawk Kristin Forbes, and puts the BoE firmly back on track to its ‘slow and steady’ normalisation approach.
“We expect the BoE to remain dovish as the impact of the weaker pound becomes fully reflected in inflation data over the course of the next 12 months, allowing it to naturally drift back in line with global averages.”
Ian Kernohan, economist at Royal London Asset Management, said the door was open for a future rate hike.
“The MPC have kept the window open for an earlier than expected interest rate hike. However, we still think interest rates will remain on hold until there are clearer signs of a pick-up in wage growth and we get some visibility on the likely impact of Brexit on the economy,” he said.
The MPC reconfirmed inflation hit 2.6% in June, up from 2.3% in March, and said it expected it to hit 3% by October this year.
It also downgraded its expectations for UK economic growth this year, from 1.9% to 1.7%.
In a statement, the committee forecast weak sterling would continue to boost consumer prices without “adverse consequences for inflation expectations” and that pay growth would pick up after several more months of modest increases.
It also expects that stunted spending by households will be balanced out by pickups in demand from other areas.
It said: “Monetary policy cannot prevent either the necessary real adjustment as the United Kingdom moves towards its new international trading arrangements or the weaker real income growth that is likely to accompany that adjustment over the next few years.
“Attempting to offset fully the effect of weaker sterling on inflation would be achievable only at the cost of higher unemployment and, in all likelihood, even weaker income growth.”
