Interest Rates Still Staying Put

For a while there have been rumours that now, or the very near future, is the time for interest rates to finally increase. However, such rumours have now lost much of their rate, as so far the Bank of England has chosen to decisively keep them where they are for the time being.

Interest Rates are currently languishing at a record low level of 0.5%. Indeed, they have remained firmly at this historic low ever since 2009. Despite strong rumours that an increase was imminent, the Bank of England’s Monetary Policy Committee (MPC) today voted overwhelmingly in favour of continuing to maintain the 0.5% level. Of the nine rate-setters who met to vote on the matter, only one was in favour of a rise and the remaining eight voted in favour of keeping things unchanged.

Many economists are still predicting that a rate rise is not so very far off but, in light of how decisively the latest vote went in favour of keeping them where they are and a number of economic factors, estimates for when exactly this will be are changing. Not so long ago, there were rumours that this month would be the time when rates increased. However, most economists had already caught onto the fact that this would probably not be the case a month or two ago, and had therefore pushed back their estimates until later in the year. Now, a number of forecasters are pushing their estimates back still further and predicting that there will not be any increase until next year.

Following the MPC’s decision, the Bank released a statement reiterating previous statements that, whenever a rise does take place, it is likely to be rolled out cautiously and slowly. “All members agreed,” according to the Bank, that “the likely persistence of the headwinds weighing on the economy” necessitated such an approach. Rate increases would probably take place not only gradually, the Bank said, but only up to “a lower level than in recent cycles.” However, the statement also made it clear that “this guidance is an expectation, not a promise.”

The minute’s of the MPC’s meeting also talk about the Bank’s expectations regarding inflation. In light of the falling international oil price, the bank now expects any near-future rise in the rate of inflation will be “slightly more gradual” than indicated by the forecast that was previously made in November. It is now predicted that several months of this year will see inflation of around 0.5% but, once a number of key factors holding back inflation at present have passed, the rate is expected to start increasing towards the target level of 2%.

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