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Interest rates held again as inflation falls further

monetary policy

The Monetary Policy Committee has kept interest rates on hold at 0.5%, marking six years of record low rates in the UK. The Bank of England also kept its stock of asset purchases on hold at £375bn. Samuel Tombs, an economist at Capital Economics, said: 'The key issue for monetary policy remains whether [the] imminent bout of deflation will become ingrained in the economy, either by pushing down inflation expectations - and so perhaps persuading households to delay consumption - or by depressing wage growth.' However he noted that recent data suggested there was 'little risk of deflation becoming entrenched', with medium term inflation expectations remaining well above the Bank's target of 2%. Markets currently believe interest rates will rise in April 2016. However, Martin Beck, senior economic adviser to the EY ITEM Club, said the MPC was likely to 'fall just short of making it seven years of inaction'.

 

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