Bank of England keeps interest rates at 0.5%

Financial markets are now not expecting a rates to move higher until mid-2016

Bank of England Governor Mark Carney (Getty)

The Bank of England has kept interest rates at the record low level of 0.5 per cent once again.

The plunging rate of inflation and speculation that Britain will soon see deflation led two members of the central bank's rate-setting committee to drop their calls for a rate hike last month.

Financial markets are now not expecting a rates to move higher until mid-2016, more than seven years after the rates were first cut to the rock-bottom level during the depths of the financial crisis.

In a brief statement after a two-day monthly meeting, the Bank's Monetary Policy Committee also said the stockpile of government bonds it bought as additional stimulus after the crisis was kept at £375 billion.

It gave no further comment.

An insight into the Bank's thinking about both rates and its stimulus package is expected to come in the quarterly inflation report next week.

The debate at the BoE so far seems to contrast with that at many other central banks around the world which have cut rates or taken other stimulus measures in recent weeks to offset fears about slowing growth and deflation.

The global plunge in oil prices has encouraged Britain's consumers to turn their savings at the fuel pumps into more shopping on other things, offsetting the drag on exports that a stagnant eurozone has generated.

Wages have started to grow a bit faster, and there have been fresh signs of strength in Britain's economy this week including better-than-expected readings of the services and manufacturing sectors and hints that a slowdown in the housing market may have reached a bottom.

"The amount of stimulus now in the pipeline means that rate-setters cannot say they have no plans to ever raise rates again," Berenberg bank economist Rob Wood said.

"In our view, the market has gone too far in pushing back the timing of rate hikes."

But Michael Saunders, an economist at Citi, said policymakers would be wary of pushing up the value of the pound sharply by suggesting a sooner-than-expected rate hike.

Additional reporting by Reuters