EXPECTATIONS of the UK’s first rise in interest rates since the financial crisis were pushed back to 2016 and beyond yesterday after it emerged Bank of England policymakers were once again united on the need to hold off.
Minutes from the January meeting of the monetary policy committee (MPC) showed the two dissenting members calling for a rise since August had abandoned their arguments in the face of plunging inflation.
Ian McCafferty and Martin Weale, who had previously been voting for an increase, still argued the sharp fall in inflation was largely driven by temporary factors and said it was unlikely to plunge into a “self-perpetuating” spiral, while noting wage growth looked buoyant.
However, the bank judged there was a “roughly even chance” inflation would dip below zero during the first half of this year.
With the effect of lower oil prices still working their way through the figures, economists now expect inflation to remain below target for most of this year.
Howard Archer, chief UK economist at IHS Global Insight, said the latest MPC minutes would fuel belief that the central bank will not be raising rates until next year, although he himself believes a 0.25 per cent hike in November is more likely.
“However, there is undeniably a very real possibility the Bank will delay acting until early 2016,” he added. “We see interest rates climbing to 1.5 per cent at the end of 2016 and to 2.5 per cent at the end of 2017.”
Investec economist Philip Shaw said it had pushed back expectations of the first rise to November from August. He added: “However we remain hesitant to believe the yield curve, which is not pricing in any tightening in policy until August 2016.”