Policymakers at the Bank of England have voted to keep borrowing costs on hold, with some observers believing a rate hike may not happen until the end of next year.
Monetary policy committee (MPC) member Ian McCafferty was again the sole voice on the panel to call for a quarter-point increase in interest rates to 0.75 per cent.
Minutes of the meeting, published today, said McCafferty’s view was that “building domestic cost pressures were likely to come to outweigh the dampening influence of the appreciation of sterling, causing inflation to overshoot the 2 per cent target in the medium term”.
They added: “All members agreed that the likely persistence of the headwinds restraining economic growth following the financial crisis means that, when bank rate does begin to rise, it is expected to do so more gradually and to a lower level than in recent cycles.
“Such guidance, however, is an expectation and not a promise: the path that bank rate will actually follow over the next few years will depend on economic circumstances.”
Nick Dixon, investment director at Edinburgh-based life and pensions firm Aegon UK, said: “With recent ‘low-flationary’ headwinds including stagnant CPI and muted consumer confidence, the first rate hike may well be pushed back into the second half of 2016.”
With interest rates having been frozen at 0.5 per cent since March 2009, savers would relish the opportunity to earn better returns, but for those businesses and consumers that have become accustomed to low borrowing costs, an upward move by the MPC would be seen as an unsettling prospect.
Bank governor Mark Carney said in July that a decision over starting a slow and gradual increase in borrowing costs “will likely come into sharper relief around the turn of this year”.
But chief economist Andy Haldane has argued that the central bank may need to cut interest rates as its next move rather than raising them. Haldane said ultra-low inflation and slowing growth meant there may be a need to “loosen” monetary policy.
In contrast, external MPC member Martin Weale said last month that “it seems likely to me that the bank rate will need to rise relatively soon”.
Calum Bennie, savings expert at Scottish Friendly said: “Mark Carney’s continued warnings that interest rates will rise soon are now looking increasingly unlikely. With no change in base rate since March 2009 and the chief economist at the Bank of England, Andrew Haldane, suggesting last month that rates may even be cut before they rise again, Mr Carney is being viewed as the boy who cried wolf.
“While a rise will come at some point, more growth and productivity in the economy is necessary before an increase can be seriously considered. Meanwhile people should remember the best way to weather any significant macro changes is to, simply, plan ahead. The best way to navigate your own financial future is to put any extra money aside in savings so you are well prepared for any fluctuations in your financial fortunes.”