The Monetary Policy Committee (MPC) voted unanimously to maintain the Bank of England Base Rate at the unprecedented low of 0.25%, after cutting the rate from 0.5% in August.
It also confirmed it will continue with the programme to purchase £60bn of additional government bonds, extending its asset purchases to £435bn as well as its scheme of buying up corporate bonds totalling £10bn.
Minutes from the meeting held last night stated that based on the November inflation report, household real income growth is expected to slow and weaken household spending at the beginning of next year, while business activity could also be restrained because of UK firms reduced access to European Union markets.
It expected the unemployment rate to rise to about 5.5% by the middle of 2018 and to stay at that level throughout 2019.
Owing to the depreciation of sterling, CPI inflation was expected to rise to 2.75% in 2018 before falling in 2019 to about 2.5% in three years’ time.
However, since then, the committee said the global outlook for the economy has become more fragile, with risks coming from China, the euro area and some emerging markets. Domestically, it believes there will be some slowing in activity during 2017, but the extent will be based on how resilient household spending is to the pressure of rising inflation.
While this week’s inflation figure for November stood at 1.2%, the MPC said it expects inflation to rise to its 2% target within six months. However, inflation is “likely to overshoot the target later in 2017 and through 2018”. This is due to sterling’s trade-weighted exchange rate appreciating by over 6% and a 14% rise in dollar oil prices.
Ishaan Malhi, CEO and founder of online mortgage broker Trussle, said mortgage rates have been at record lows so today’s announcement is good news for those looking to buy a home or switch their current mortgage to a new low-rate deal.
“However, lenders and brokers must do more to keep homeowners informed about opportunities like this; according to our research just one in 20 mortgage holders have thought about taking advantage of these low rates since the Bank of England’s action,” he added.
