Interest rates to stay down as Bank of England's 'swing voter' rejects hike

Deputy Governor Ben Broadbent shows his hand amid China and Europe slowdown

UK rate rises look a long way off after one of the Bank of England’s “swing voters” declared he was not ready to join the hawks seeking an increase.

The doveish comments from Ben Broadbent, a deputy governor at the Bank, added to expectations that the cost of borrowing would not be rising until well into next year.

Only Ian McCafferty has so far voted for a rise at the monthly meetings of the Bank’s Monetary Policy Committee, although Martin Weale and Kristin Forbes have both been mentioned as possible hawks. But Mr Broadbent made it clear he was not, despite some speculation, in that camp. “I was not one of those on the brink of voting for higher interest rates,” he told Reuters.

Rates are at record lows and the Bank had been mulling raising them for the first time since 2007, until the Chinese economic and market woes provided pause for thought. This has been the case in both the UK and the US.

Mr Broadbent said: “It has been true for some time that we have been having to weigh up what has looked like a fairly robust recovery in domestic demand, against weakness in the rest of the world.” He was speaking as the world’s biggest bond investor, Pimco, suggested the super-easy monetary policy in Europe could be extended all the way through to 2017 and beyond as policymakers try to stave off deflation and sluggish growth.

Pimco predicted inflation would crawl from nearly zero to 1.25 per cent over the next year– well below the European Central Bank’s “close to 2 per cent” target.

The fund predicted in its latest forecast that the ECB would be forced to increase bond purchases by an extra €10bn (£7bn) a month to €70bn, or extend its quantitative easing programme into 2017. “The cumulative amount of money that will be injected into the economy via QE is equivalent to about 10 per cent of gross domestic,” said Pimco director Andrew Bosomworth. The Pimco prediction came as an increasing number of economists are worrying about the potential impact of the VW scandal on the German economy. The car industry is the country’s biggest exporter, and VW is its biggest automotive business. ING chief economist Carsten Brzeski said: “All of a sudden, VW has become a bigger downside risk for the German economy than the Greek debt crisis. “If VW’s sales were to plunge in North America in the coming months, this would not only have an impact on the company, but on the economy as a whole.”

If the problem were wider than the company’s exports to the US, the economic effects would be even worse.

Martin Gornig of the Berlin-based think-tank DIW told Bloomberg: “Should automobile sales go down, this could also hit suppliers and, with them, the whole economy.”

Away from the eurozone, other parts of the Continent are still suffering. Norway cut its interest rates by a quarter-point to 0.75 per cent, with investors expecting further reductions to come. The low crude price in the oil-rich nation has brought economic growth to a crawl.

Taiwan also cut rates for the first time since 2009.