The minutes from the meeting revealed that China’s instabilities was “the main focus” of its decision, while “immediate concerns about the tail risks from the Greek crisis had receded”.
Ian McCafferty again voted to increase the base rate by 25 basis points, although all nine members of the MPC were unanimous in maintaining quantitative easing at £375bn and new member Gertjan Vlieghe voted with the majority on both counts.
The MPC anticipated inflation picking up “around the turn of the year”, although it added that volatility in the oil price makes this uncertain.
The minutes read: “Ian McCafferty preferred to increase Bank Rate by 25 basis points, given his view that building domestic cost pressures would otherwise be likely to lead to inflation overshooting the target in the medium term.
“All members agree that, given the likely persistence of the headwinds weighing on the economy, when Bank Rate does begin to rise, it is expected to do so more gradually and to a lower level than in recent cycles.
“This guidance is an expectation, not a promise. The actual path that bank rate will follow over the next few years will depend on the economic circumstances.”
Vicky Redwood, chief UK economist at Capital Economics, said: “The MPC’s decision to leave interest rates on hold today is unsurprising given the recent market turmoil and the weakening of the near-term inflation outlook.
“Looking ahead, there is little pressure on the MPC to raise rates soon. Indeed, the situation facing the MPC is rather more clear-cut than that facing the US Fed. The economic recovery in the UK appears to have faltered (albeit temporarily in our view), the labour market has weakened and a return to deflation in the next few months is likely.
“Admittedly, financial markets have probably gone a bit far in pushing expectations of the first hike all the way back to next September/October. But a rate rise before Q2 still seems unlikely in our view."
She added: “The MPC doesn’t appear too shaken by recent global developments, which it said did not materially alter its central view. But it did concede that the downside risks to global activity had increased.”
