Bank of England decides to keep interest rates at record low
The monetary policy committee of the Bank of England has decided to put the interest rates on hold at 0.5% again.
The committee voted 8-1 in favor of the exiting rate with Ian McCafferty becoming the only member who voted to raise the interest from their record low.
“The near-term outlook for inflation is muted. The falls in energy prices of the past few months will continue to bear down on inflation at least until the middle of next year,” the committee said in a statement.
“For a while, the head of the Bank of England have been talking about the interest rates and it was expected that Mark Carney would do after the monetary committee decides. But they [the committee) decided to keep the interest low to zero with very simple reason: to keep the cost of borrowing low in order to make the cost of production cheap to be able to exported and in order to avoid some sort of recession again”, Javier Farje, a London-based commentator told Press TV.
Farje added that the energy prices have brought the inflation down to the extent of deflation which means cost of product is lower than the production.
“Low oil prices have created this deflation and the Bank of England requires an increase in inflation to at least 2% because it is a manageable percentage that means it needs to get higher prices to get the economy running. This’s happening in Japan which has zero percent interest rates for many years and the economy is stagnant, not moving because people are not buying and waiting the things to go even lower”, he said.
It was widely expected that the bank would make some changes in the existing rates in order to put a stop on the low borrowing cost. The announcement also caused sterling to shed almost three-quarters of a cent to 1.5488 against the dollar.
Economists cite lower oil prices as a major factor behind the bank's inability to increase inflation rates. Nevertheless, the bank says it expects the inflation to be back to its 2% target in two years' time. It means, if there’s a rise in the rate in mid-2016, borrowing costs would climb to 1.5% by the end of 2017.
Some economists say it would be a reckless to push through a rate rise amid fragile economic recovery.
"Rates will eventually have to rise and when they do, it should be done slowly and steadily. Until that moment, the Bank of England is right to keep interest rates at current levels." said John Longworth, director general of the British Chambers of Commerce.
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