Rock bottom rates might not rise until 2016

Chris Papadopoullos
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POLICY makers at the Bank of England kept interest rates at 0.5 per cent yesterday.

The decision was widely expected as inflation is expected to fall furth­er below the Bank’s two per cent target over the next few months.

In December, inflation as measured by the annual change in the consumer price index was one per cent, according to figures from the Office for National Statistics.

“Time is on the side of the Bank of England. Plunging inflation and fiscal uncertainty following the election keeps the need for supportive monetary policy,” Guy Miller, chief market strategist at Zurich Insurance told City A.M.

The decision to keep rates on hold could be repeated throughout 2015, according to economists at the EY Item Club – a group organised by consultants EY that uses the same forecasting model as the Treasury.

Philip Shaw, the chief economist at Investec points to expectations implied by market prices.

“It is not now pricing in the first increase in the Bank rate until spring 2016,” he said.

The details of today’s rate decision will be released on 21 January.