Bank Of England Keeps Rates On Hold, MPC Split 8-1

The Bank of England maintained its record low interest rate and quantitative easing unchanged as expected, on Thursday.

Policymakers observed that downside risks to global growth and the recent decline in oil prices could depress the near-term inflation outlook.

The Monetary Policy Committee, governed by Mark Carney, voted 8-1 to keep the interest rate unchanged at 0.50 percent. The rate has been at the current record low level since early 2009.

The MPC voted unanimously to retain the asset purchase plan at GBP 375 billion.

Ian McCafferty has been the sole dissenter since August, seeking a 25 basis points rate hike, suggesting that the majority of policymakers are in no hurry to tighten monetary policy.

McCafferty viewed that the risks to domestic cost growth remained to the upside, and, given the recent depreciation of sterling, were less likely to be offset by the drag from earlier sterling appreciation.

Other eight members of the committee continued to judge that leaving the stance of monetary policy unchanged would best balance the risks around achieving the MPC's objective of returning inflation sustainably to the target in around two years' time.

Due to falling oil prices, the increase in inflation is expected to be slightly more gradual in the near term than estimated in the Inflation Report, the bank said.

Despite the fall in oil prices, inflation should still pick up quite quickly over the coming months, to around 1 percent by Spring, Paul Hollingsworth at Capital Economics, said.

While the chances of a later hike are clearly building, the economist continues to think that the MPC will hike rates this year, much sooner than the market expects.

IHS Global Insight Economist Howard Archer said the bank is unlikely to raise its interest rates to 0.75 percent before August. He sees the bank only lifting interest rates to 1.75 percent by end-2017 and 2.25 percent by end-2018.

The actual path that interest rate will follow over the next few years will depend on the economic circumstances, the bank said in its monetary policy summary.

Policymakers said continued quarterly growth at rates of around 0.5 percent were likely around the turn of the year, a little weaker than the near-term outlook in the November Inflation Report.

The National Institute of Economic and Social Research said the British economy expanded 0.6 percent in the three months to December.

According to an annual survey from the EEF this week, Britain was becoming less competitive as a manufacturing hub. Manufacturers expect 2016 to be a year of tough decisions and more prominent risks.