The Bank of England’s Monetary Policy Committee has once again voted to keep base rate at 0.5 per cent.
Minutes from yesterday’s meeting show just one member, Ian McCafferty, voted for a rise. He believed rates should rise by 25 basis points because “the path of domestic costs was more likely to lead to inflation exceeding the target in the medium term than was embodied in the Committee’s collective November projections”.
The minutes reiterate that when rates rise they will do so slowly, due to the “likely persistence of headwinds weighing on the economy”.
The committee voted unanimously to maintain its quantitative easing programme at £375bn.
Legal & General Mortgage Club director Jeremy Duncombe says: “Borrowers will likely greet today’s decision by the Bank of England with apathy, but must not believe this low interest rate environment will last forever. Earlier this month, George Osborne warned mortgage holders must be prepared for a UK interest rise in 2016, following the hike in US rates last month.
“Although such a rise was unlikely in January, it’s crucial that borrowers on an SVR or those at the end of their current agreement look to secure a more beneficial rate by remortgaging now, before lenders price-in the inevitable rise. Banks will start to include any changes in the base rate in their calculations well ahead of a decision by the Monetary Policy Committee.”
Twelve-month CPI inflation rose to 0.1 per cent in November, still well below the Bank’s target of 2 per cent.
The Bank predicts this will rise “modestly” in the coming months but at a slower pace than its previous estimate.
It says: “The 40 per cent decline in dollar oil prices means that the increase in inflation is now expected to be slightly more gradual in the near term than forecast in the Committee’s November Inflation Report projections.
“Although a large part of the current deviation of CPI inflation from the 2 per cent target reflects unusually large drags from energy and food prices, core inflation also remains relatively subdued.”
The Bank points to the past appreciation of sterling, weak global inflation and restrained domestic cost growth as key factors suppressing core inflation.