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Interest rates to remain at current low

09 Jan 2015

The Bank of England’s (BoE) Monetary Policy Committee has voted to keep interest rates at 0.5% for at least another month, and rates are expected to remain low for the foreseeable future.

Two members of the Committee, Ian McCafferty and Martin Weale, have consistently voted for a rate increase in light of the improved economy, and many economists have been expecting rates to rise since the BoE’s previous low unemployment criteria were met last year. Back in September 2014 Governor of the BoE, Mark Carney had said: ‘While there is always uncertainty about the future, you can expect interest rates to begin to increase’.

However, this now seems unlikely. Howard Archer, chief European economist at IHS Global Insight, said that he expected there to be at most one 0.25 percentage point rate hike in 2015, adding: ‘There is clearly a very real possibility that the Bank of England will delay acting until early 2016.’

Responding to the decision, Trades Union Congress (TUC) General Secretary, Frances O’Grady, said: ‘With inflation at just 1%, signs that economic growth is slowing, and deflation in the Eurozone, it’s no surprise the Bank has not raised rates’.

She added: ‘It is wages that we need, not an interest rate rise’.

Official figures have recently shown that the UK economy recovered at a slower pace in 2014 than previously thought, with GDP for the third quarter of 2014 estimated to be 3% higher than 2013, now revised down to 2.6%.