An eight to one split in the monetary policy committee remains, with the only member in favour of a rise this month being hawk Ian McCafferty.
“Today’s decision to leave interest rates and QE unchanged should be a surprise to no-one given November’s dovish statement and the theme very much remains one of headline borrowing costs remaining lower for longer,” Russ Mould, investment director at AJ Bell.
“Governor Mark Carney cited weak inflation, which is expected to remain under 1% until the second half of 2016 and thus well below the 2% target, as well as a strong pound as reasons for standing pat,” he added. “Oil’s renewed weakness will be one factor that keeps inflation subdued and Carney will not want sterling to shoot higher either, something which could happen after a rate rise when Europe and Japan are still loosening policy, as this will crimp both inflation and exports.”
Mould also noted that the Bank is facing ‘hugely powerful’ disinflationary forces in the shape of lofty global debts, demographics and the internet and it therefore looks likely that rates will remain very low for some time to come.
“No surprise from the Bank of England today, following last month’s dovish Inflation Report,” said Ian Kernohan, economist at Royal London Asset Management. “Although, it is notable that some of the more hawkish MPC members, other than Ian McCafferty, have yet to vote for a rise in rates. We do not expect a hike in interest rates until CPI inflation moves above 1% and out of letter writing territory in the second half of 2016. This is subject to Brexit referendum risk, as any significant hit to economic activity from Brexit related uncertainty will take hikes off the table.”
According to the latest Thomson Reuters/ Ipsos Primary Consumer Sentiment Index meanwhile, consumer confidence decreased by 0.2% in December.
The poll found a modest rise in perceived economic expectations, which rose 0.9% but conversely there was an a decline in job security outlook of 0.9%.
“This month shows a continuation in deteriorating consumer sentiment albeit the rate of decline appears to be levelling off,” said Bobby Duffy, managing director of public affairs at Ipsos MORI. Spending cuts recently announced by George Osborne may have had some effect on the public’s sense of job security however their economic outlook seems to be slightly more positive.”