Belfast Telegraph

Bank of England ditches plans for another interest rate cut

The Bank of England has scrapped plans for more interest rate cuts and ra ised its growth forecast for this year and next - but sent out a warning to households over soaring inflation.

Minutes for the latest Monetary Policy Committee (MPC) meeting showed members voted unanimously to keep rates at 0.25%, having been slashed from 0.5% to a fresh record low in August as part of a post-referendum stimulus package worth £170 billion.

Bank governor Mark Carney admitted that growth had been "materially better" than the Bank had expected in its August inflation report, dashing expectations for another interest rate cut this year.

"In light of the developments of the past three months, all MPC members agreed that the guidance it had issued following its August meeting regarding the likelihood of a further rate cut in bank rate had expired," the MPC minutes said.

In its latest quarterly inflation report, the Bank raised its forecast for Gross Domestic Product (GDP) growth over the next two years, revised up from 2.0% to 2.2% for 2016 and from 0.8% to 1.4% in 2017.

It follows better-than-expected growth of 0.5% in the third quarter, with the Bank also now pencilling in fairly steady expansion of 0.4% in the final three months of 2016 - citing stronger consumption following the Brexit vote.

But the Bank slashed its forecast for growth in 2018 to 1.5% from 1.8% and gave a gloomy outlook for households, with higher unemployment and soaring inflation set to knock their spending power.

Meanwhile, inflation is now expected to exceed the Bank's 2% target to reach 2.7% next year - the highest overshoot the MPC has ever forecast - amid a further collapse in the pound.

However, the Bank said it would allow inflation to run above-target, and that attempts to offset the effects through a rate hike would be "excessively costly" to the economy, though there were "limits" to which the MPC would tolerate a rise in consumer prices.

Financial markets are now predicting the Bank will hold interest rates steady through to the end of 2019, when they expect the MPC to vote for an increase.

Mr Carney played down the impact that the growth and inflation revisions would have on the Bank's credibility, and said when "we will end up in relatively the same place with the economy" in three years time when accounting for the longer-term dip in growth.

The governor stressed the Bank had full backing from the Government despite recent criticism from Theresa May who claimed easing efforts were disproportionately hurting savers while benefiting the asset-rich.

"We don't feel under any pressure from the Government and certainty none from the Prime Minister. The Prime Minister fully supports, and the Government fully supports, the monetary policy framework we have in place."

It came amid criticism that Mr Carney went too far in warning of the economic dangers of leaving the EU in order to bolster Remain during the referendum campaign.

Mr Carney earlier this week announced he would stay on as governor until 2019 to coincide with Britain's formal exit from the EU , assuming Mrs May sticks to her pledge to trigger Article 50 in spring 2017.