The Bank of England’s Monetary Policy Committee voted against hiking rates on Thursday, keeping benchmark interest rate at record low of 0.25 percent.
The vote was 6-2 for no change, with Michael Saunders and Ian McCafferty voting in favour of a rate hike. Bank chief economist Andy Haldane surprised onlookers by voting to keep the current rate, despite speculation he may have been in favour of a rise.
Members of the Committee also voted in favour of extending a credit facility to British banks from £100 billion to £115 billion, with the Term Funding Scheme (TFS) running until February 2018. £78 billion has already been lent to banks through the scheme.
Tom Stevenson, investment director for Personal Investing at Fidelity International, commented on the decision:
“It seems the bank is reluctant to rock the economic recovery by hiking rates just yet and the Bank’s view on growth has also been downgraded since the May meeting. Three months ago, the Bank expected GDP to rise by 1.9 percent in 2017, 1.7 percent in 2018 and 1.8 percent in 2019. This time, the equivalent forecasts are 1.7 percent, 1.6 percent and 1.8 percent.
“It is hard to see interest rates rising very far, very fast in the current sluggish environment. And with no pressure from other central banks – the US, Europe and Japan are also loath to tighten prematurely – we should expect the Bank to remain on its lower-for-longer trajectory.”
The Bank of England are increasingly facing pressure to raise rates, after the US Federal Reserve chose to hike theirs. However, the UK economy is struggling under the weight of the Brexit decision and increasing inflation, leading the Committee to believe that now is not the right time to follow the US’s lead.