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Bank of England keeps rates steady, cuts growth forecast

Published:Friday | February 5, 2016 | 2:00 AM
Governor of the Bank of England Mark Carney.

Bank of England cuts growth forecast

The Bank of England voted to keep interest rates at their record low of 0.5 per cent on Thursday and cut its forecasts as a slowdown in global growth and market volatility cast uncertainty over the country's outlook.

The unanimous vote on the nine-member Monetary Policy Committee on Thursday reinforces investors' expectations that the bank will not be able to raise interest rates as soon as it had expected until recently. Some believe it may have to cut rates instead.

"Global growth has fallen back further over the past three months, as emerging economies have generally continued to slow and as the United States economy has grown by less than expected," the policy committee said in a statement. "There have also been considerable falls in the prices of risky assets and another significant fall in oil prices."

With inflation at 0.2 per cent - far below the 2 per cent target rate - there's little pressure to raise rates. Some observers have suggested the bank might consider lowering rates, following in Japan's footsteps.

In its quarterly update to economic forecasts - published alongside the policy decision and the minutes to the meeting - the Bank of England downgraded its growth forecasts. The report included a discussion on the global economy, the recent upheaval in the financial markets and the government's steps to hold a referendum on whether Britain should remain in the European Union.

The bank cut its growth forecasts for the next three years to 2.2 per cent in 2016, 2.4 per cent in 2017 and 2.5 per cent in 2018.

In the November report, it had predicted growth at 2.5 per cent in 2016, 2.7 per cent in 2017 and 2.6 per cent in 2018.