The Bank of England has voted to keep interest rates on hold once again in its April meeting — as analysts had expected.
Interest rates have been on hold since March 2009, when the monetary policy committee first cut the Bank Rate to 0.5%. It’s now stood at 0.5% for a record 85 months.
All nine members of the bank’s Monetary Policy Committee voted for the hold for a third straight month.
In February, the MPC’s sole hawk Ian McCafferty, who had previously voted for a 0.25% rise, changed his position and voted to hold rates.
The BoE cited a potential “softening of growth” in early 2016, and continued subdued inflation in the UK as reasons for the hold.
Here’s the key quote from the MPC’s minutes:
Returning inflation to the 2% target requires balancing the potentially lessening drag from external factors against expected gradual increases in domestic cost growth. Fully offsetting that drag over the short run would, in the MPC’s judgement, involve too rapid an acceleration in domestic costs, one that would risk being excessive and would lead to undesirable volatility in output and employment. Given these considerations, the MPC intends to set monetary policy to ensure that growth is sufficient to return inflation to the target in around two years and keep it there in the absence of further shocks.
General market consensus has been pricing the next interest rate hike as far out as 2020, with some analysts even expecting a cut before the next hike.
However, after slightly better than expected UK inflation in March, some analysts are bringing their predictions for the next hike. Here’s what Pantheon Macroeconomics had to say in anote sent on Wednesday evening: “At today’s MPC meeting, the centre of gravity of the policy debate is likely to shift towards the merits of raising interest rates, rather than cutting them.”
That’s because in March, consumer price inflation in the UK grew from 0.3% to 0.5%, above the MPC’s forecast of 0.4% growth. Pantheon says that this growth is “challenging the consensus view in the markets that the MPC will leave interest rates on hold until the end of the decade.”
The BoE doesn’t seem to agree with Pantheon’s outlook, saying that “the broad outlook for activity and inflation appears little changed.” It did however say that “it is more likely than not that Bank Rate will need to increase over the forecast period” — essentially, it expects to hike rates in coming years.
That’s despite acknowledging that “core inflation also remains subdued, a consequence of the past appreciation of sterling, weak global inflation and restrained domestic cost growth.”
Sterling rebounded after the decision. It had been down as much as 0.8% against the dollar on Thursday morning, after Sky News economics editor Ed Conway suggested that some MPC members could be leaning towards a cut in rates. “I understand at least two members of the MPC are strongly considering a vote for a cut in interest rates” Conway tweeted.
After the decision, it rebounded to just 0.3% down, and is now off around 0.45%. Here’s the chart so far today:
Along with the interest rate decision, the Bank also kept its Asset Purchase Facility at £375 billion ($531 billion).