Interest Rates On Hold As Bank Cuts Forecast

The Bank of England has left interest rates on hold as it cut its forecasts for UK economic growth.

Members of the Bank's Monetary Policy Committee (MPC (KOSDAQ: 050540.KQ - news) ) voted 8-1 to leave rates at 0.5% where they have remained for nearly seven years.

The decision was widely expected amid mounting gloom over the global economy and the latest downward revisions to official UK gross domestic product (GDP) data as well as a mixed picture from more recent unofficial figures.

Minutes of the MPC's meeting said: "Reflecting both the revised official data and the latest surveys, and despite the prospective boost to GDP from the latest oil price falls, Bank staff had lowered their central projections for GDP growth in Q4 and Q1 by 0.1 percentage points to 0.5% in each quarter."

In the US, the Federal Reserve raised rates for the first time last month since they were slashed to near-zero during the financial crisis in 2008 but the Bank of England is yet to show any signs of being ready to follow suit.

Britain's economic recovery over the last couple of years as heightened speculation about when rates will rise. But a plunge in the price of oil - with Brent crude this week crashing below $30 a barrel for the first time since 2004 - has pushed inflation close to zero, easing any pressure for a hike.

Instead, signs of weakening global growth and stock market turmoil in recent months have increased anxiety about the UK's prospects. A more fragile economy would be seen as less likely to withstand the pressure of higher rates on the borrowing costs faced by households and businesses.

The Bank said: "Recent volatility in financial markets has underlined the downside risks to global growth, primarily emanating from emerging markets."

Rate-setters also noted a mixed picture for the domestic economy, with unemployment falling more quickly than expected and pay growth weakening. The Bank expects the steep oil price falls mean UK inflation will take longer to recover. The MPC targets an inflation rate of 2%.

Last month, the Office for National Statistics (ONS) published revised figures showing UK growth had been weaker than previously thought during 2015, with GDP increasing by just 0.4% in the third quarter.

Paul Hollingsworth, UK economist at Capital Economics, said: "The MPC's decision to leave interest rates on hold today at 0.5% was unsurprising given the recent fall-back in the oil price, renewed market concerns about the health of the global economy, and the weaker near-term growth outlook for the UK. "

Investec (LSE: INVP.L - news) 's Chris Hare pushed back the likely date for a UK rates hike from the second quarter to the final quarter of this year.