Interest rates held again but increase may be just months away

While members of the Bank’s nine-strong Monetary Policy Committee voted 7-2 to keep interest rates on hold, contents of the meeting’s minutes hinted that members were talking in much stronger terms about an increase.

The announcement comes just two days after latest data revealed that the UK’s inflation rate equalled its highest rate in more than five years last month on the back of price rises of petrol and clothing, and compounded by the continued fall in the value of sterling.

UK inflation measured by the Consumer Prices Index rose to 2.9 per cent in August, up from 2.6 per cent in July, data from the Office for National Statistics showed.

The pound climbed nearly 1 per cent against the dollar to $1.3314 after the Bank’s announcement this morning.

It said the growth outlook was slightly stronger than it had predicted last month.

The nine policymakers on the panel believed “some withdrawal of monetary stimulus was likely to be appropriate over the coming months”.

It reiterated that rates may need to rise by more than expected in financial markets.

In minutes of its latest rates decision, the Bank said there was a “slightly stronger picture” for the economy since its forecasts last month thanks to signs of a firmer housing market, stronger employment and a rebound in retail and new car sales.

Liz Cameron, Chief Executive, Scottish Chambers of Commerce said: “It was critical that the Bank of England demonstrated resolve on interest rates today. As illustrated by the government figures released earlier this week, increases in average weekly earnings are failing to outpace inflation, which continues to impact consumer spending and restrain wider economic growth.

“The circumstances currently being experienced by the UK are exceptional, and although the Committee is clear that monetary policy is not unlimited in its ability to insulate the economy from economic shocks, it is right, in our opinion, that the interest rate was held at 0.25% at this stage.

“With a rise in interest rates being considered at a more rapid pace than that currently expected by the markets, it is essential that the impact on wider business investment is fully considered before committing to any increase. Ultimately, business investment in skills and infrastructure is the only sustainable path to raise productivity, and ensure the rising profitability and wage increases needed to grow the economy.”