The Bank of England decided not to raise rates earlier this month citing a slowdown in the eurozone, particularly Germany, and jitters in financial markets.
The Bank also admitted that it had been caught on the hop by the unexpectedly low September inflation rate of 1.2 per cent, which was 0.3 per cent lower than its staff had expected, the minutes of the monetary policy committee revealed today.
The nine-person committee which sets interest rates again voted 7-2 against any change with Ian McCafferty and Martin Weale once more taking the more hawkish stance.
But the majority of the committee reflected the views expressed last week by committee member Andy Haldane that rates could stay “low for longer” as the economic recovery stutters.
The pound fell as much as a cent against the dollar on publication of the minutes, which confirmed the Bank’s more gloomy outlook for the UK economy.
The Bank said it had taken its decision against a background of tumbling share prices with a fall of 5 per cent in equities in the UK and 3 per cent in the US in the run-up to its two-day meeting.
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It said: “A combination of generally weaker news on the global economic outlook and continuing geopolitical risks in a number of regions had weighed on market sentiment and pushed down on risky asset prices.”
By the time of the meeting financial markets had shifted their view on when the Bank would raise interest rates from 0.5 per cent, which has been in place since March 2009, by 0.25 per cent by around two months to July 2015.
Chris Williamson, chief economist at Markit, said: “This will add further to the belief that interest rates will not rise until next summer at the earliest.
"The minutes highlight how concerns stem from signs that the eurozone may be sliding back into recession, and the extent to which slower growth on the continent will hit the UK.”
Howard Archer of IHS Global Insight agreed: “At this stage, we do not think that the Bank of England will delay raising interest rates past mid-2015 as we do expect UK growth to hold up relatively well over the coming months, barring a major global downturn.
“However, there are mounting downside risks to this outlook.”Reuse content