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Interest rates are kept low despite US hike looming

By Holy Williams

Published 11/12/2015

The Bank of England's Mark Carney
The Bank of England's Mark Carney

The Bank of England ended another year leaving interest rates at record lows as the cost of borrowing was held once more at 0.5%.

Members of the Bank's nine-strong Monetary Policy Committee (MPC) voted eight to one to keep rates unchanged in the final decision of 2015, as they have done now for more than six years.

The decision comes as the US Federal Reserve is poised to make its first interest rate increase in nearly a decade, while monetary policy in Europe is moving in the opposite direction.

Federal chair Janet Yellen has indicated that a rise in American rates is a near certainty when the country's policymakers decide on December 16.

The rise in US rates would be the first since 2006, and there are fears it will trigger market disruption, also coming at a time when the global economy and China's growth have been slowing.

Meanwhile, the European Central Bank last week announced a cut to overnight deposit rates from minus 0.2% to minus 0.3% and extended a €60bn (£43bn) stimulus programme by six months.

The rate-setting committee said there was "no mechanical" link between UK monetary policy and that of other central banks, according to minutes of this month's meeting.

This comes after Governor Mark Carney has already said a decision to raise rates in the US is "not decisive" for UK policymakers, stressing any such move on these shores will be made according to UK economic conditions.

The bank signalled in its quarterly inflation report last month that an interest rate rise in the UK may still not come for another year.

This month's rates decision comes as the economy still faces some challenges, with the minutes of the MPC meeting showing recent economic indicators suggested little pick-up in gross domestic product in the fourth quarter.

The report showed the bank believes growth would be maintained "at a similar pace" to that in the third quarter, when it slowed to 0.5%.

The minutes added that MPC members were also concerned by a slowdown in wage growth.

But recent declines in oil prices are also likely to keep inflation at ultra-low levels, with the consumer prices index already in negative territory - at minus 0.1% in October - meaning there is little rush for the MPC to pull the trigger on a rate rise.

The Bank said in last month's forecast that inflation would stay below 1% until the second half of 2016.

But the minutes also show that if oil prices, which touched below $40 a barrel earlier this week for the first time in nearly seven years, see another sustained decline, its inflation forecasts could be trimmed once again.

Belfast Telegraph

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