The Bank of England voted unanimously to keep interest rates at a record low of 0.5 per cent, Minutes of the Monetary Policy Committee’s November meeting showed.
It also signaled that interest rates could stay unchanged after unemployment reaches the 7% threshold under the Bank’s forward guidance, as long as inflation expectations remain under control. If rates remain unchanged the Bank believes the threshold could be hit as soon as the end of next year.
The Bank believes growth could accelerate to 0.9% in the final three months of the year but stressed upward and downward risks to the economy thereafter.
The MPC said rising confidence and easing credit conditions could encourage businesses to kickstart investment spending, but also worried that the pressure of clearing debts and falling real incomes could snuff out a consumer recovery before firms could be persuaded to spend. The upturn in the Eurozone was also “fragile and in its early stages”, the minutes noted.
The dovish tone sent the pound 0.3c lower against the dollar immediately following the minutes.
Capital Economics chief European economist Jonathan Loynes said: “Overall, the main message again is not to put too much emphasis on the 7% unemployment rate. Provided inflation pressures stay subdued, as we expect, interest rates are going nowhere for a long time yet even if the economy continues to grow strongly.”