Mar 22 2016

Bank of England keeps interest rates at record low of 0.5%, citing slowdown in emerging markets

The Bank of England has decided to keep the UK central interest rate unchanged at 0.5%. The policy makers decided to keep borrowing costs at a record low.

The BoE's Monetary Policy Committee (MPC) cited the slowdown in emerging markets as one of the reasons to hold off on a rate hike. The unchanged interest rate was largely in line with expectations.

MPC members voted unanimously against a change in the UK interest rate, and underlined the fact that inflation, at 0.3% in January, is still a far cry from the 2% inflation target set by the BoE.

Despite some concerns about the global economy, the BoE stated that the UK's situation was solid. "A tighter labour market and rising productivity are expected to support real incomes and consumption," the central bankers said. "Consumer confidence and most surveys of business investment are above historical averages."

The minutes published by the MPC showed that the committee's stance hasn't changed much since recent meetings. The policymakers did warn, again, that the EU referendum would bring "increased uncertainty". UK stock markets have shown great volatility in the run-up to the referendum in June.

The BoE also said that it is more likely to increase the bank rate than not, while the markets actually expect a cut in interest rates rather than a hike. It would follow the European Central Bank and the Bank of Japan (BoJ), which have both cut central interest rates. The BoJ has even cut the rate into negative territory.

"All in all, there is nothing in these minutes to suggest policy action — in either direction — is likely soon," said Samuel Tombs, chief UK economics at Pantheon Macro. "We continue to think, however, that inflation will surprise to the upside later this year and throughout 2017, compelling the MPC to raise interest rates at least once before the end of this year."

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