Bank of England Holds Rates on Tame Inflation Outlook

Dow Jones Newswires

The Bank of England kept its benchmark interest rate unchanged Thursday, saying it expects lower oil prices and weak wage growth to keep a lid on inflation for some time to come. The U.K. central bank said in a statement that its nine-member Monetary Policy Committee voted eight to one to maintain the central bank's main interest rate at 0.5%, where it has been since early 2009. The panel voted unanimously to keep the size of the BOE's bond portfolio at GBP375 billion ($565 billion). The BOE's decision to stand pat comes as other major central banks chart increasingly divergent courses. The European Central Bank ramped up its stimulus efforts earlier this month in an attempt to lift inflation in the 19-nation eurozone back toward its target of just under 2%. The Federal Reserve, by contrast, is expected next week to raise short-term interest rates in the U.S. for the first time in almost a decade. For the majority of officials at the BOE, the outlook for growth and inflation in the U.K. doesn't yet justify an increase in the central bank's benchmark rate. Consumer prices fell 0.1% on the year in October and annual inflation is expected to stay below the BOE 2% target throughout 2016, according to central bank forecasts. Minutes of December's policy meeting show officials were concerned by an apparent slowdown in wage growth, as well as a further dip in oil prices. These developments may "increase the likelihood that headline inflation rates would remain subdued," according to the minutes. For the sole dissenter on the MPC, Ian McCafferty, the risk that inflation overshoots its 2% target within two years was sufficient to justify an immediate rise in the benchmark rate to 0.75%. Investors expect the BOE to raise interest rates in the U.K. late next year or early 2017, according to interest-rate derivatives that track the BOE's benchmark rate. Central bank officials say they expect future increases in borrowing costs to be limited and gradual. Write to Jason Douglas at jason.douglas@wsj.com and Jon Sindreu at jon.sindreu@wsj.com

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