Bank of England in no hurry to end stimulus

Rate-setters note latest oil price fall, slow wage growth

The Bank of England remains unhurried about raising interest rates, pointing yesterday to a new fall in oil prices and slower wage growth as it kept borrowing costs at the record low where they have sat since 2009.

The British central bank’s policymakers said they would not match an expected rate hike by the US Federal Reserve next week, stressing there was “no mechanical link” with its thinking.

In minutes of its latest policy meeting which ended on Wednesday, the BoE expected the softer public spending cuts announced last month by finance minister George Osborne would give a boost to growth next year.

But overall, the tone of the minutes published yesterday suggested the Bank was at least a few months away from any move to start weaning Britain off the stimulus of low rates.

Sterling weakened against the US dollar and the euro and British government bond prices rose.

“With inflation not expected to start edging up until next year, or reach target until well into 2017, there is simply no need for the Bank to consider changing tack,” the British Chambers of Commerce’s chief economist, David Kern, said.

Inflation worry

Britain’s economy has grown strongly for more than two years but inflation remains below zero and the BoE has kept rates at the level to which they were cut during the worst of the financial crisis nearly seven years ago.

Governor Mark Carney and other Monetary Policy Committee members said the “material news” in the month since they had last met was that oil prices had “fallen markedly again”, which raised the likelihood of inflation staying subdued.

They also highlighted a levelling off in wage growth in Britain, something which is central to the Bank’s deliberations on when interest rates need to rise.