Bank votes eight to one to hold interest rates

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The Bank of England’s Monetary Policy Committee has voted to hold the base rate at 0.25 per cent.

The committee voted by a majority of eight to one as Kristin Forbes – who is set to stand down from the MPC in June – voted in favour of a 25 basis point increase.

The MPC voted unanimously to continue with the Bank’s £10bn asset purchase programme of buying sterling non-financial investment grade corporate bonds, and was also in agreement on maintaining the stock of UK gilt purchases, also financed by central bank reserves, to the tune of £435bn.

Minutes from the meeting describe the appropriate path for monetary policy to depend on “the evolution of demand, potential supply, the exchange rate, and therefore inflation”.

CPI inflation increased to 1.8 per cent in January,with the MPC expecting it to rise above the 2 per cent target over the coming months, before peaking at around 2.75 per cent in early 2018 before drifting back down to target.

The MPC says: “The projected overshoot entirely reflects the expected effects of the drop in sterling.”

Hargreaves Lansdown senior analyst Laith Khalaf says: “The Bank of England is showing no signs of blinking in the course it has charted for monetary policy.

“The central bank is now watching three key measures to determine what to do with interest rates: consumer prices, consumer spending and wage increases. These are the indicators to watch for an inside track on the Bank’s next move, however that move may be some time coming, and as recent history tells us, it may not be in the direction everyone expects.”

Capital Economics UK economist Ruth Gregory says: “The minutes struck a generally hawkish tone. Indeed, there were signs that other members may be close to voting for a tightening in monetary policy.

“Given the considerable degree of uncertainty surrounding the economic outlook, it still seems unlikely that the MPC will follow the US Fed and raise rates anytime soon.”