Bank of England keeps rates on hold at record low

[LONDON] The Bank of England kept interest rates at a record low on Thursday as policymakers gave more weight to the risks from low inflation and a weak global economic outlook than to a strong recovery at home.

The BoE's Monetary Policy Committee, as expected, left its Bank rate at 0.5 per cent, where it has been since the depths of the financial crisis nearly six years ago, and made no statement.

Britain's consumer-led recovery looks set to slow down only modestly going into 2015, but economists and financial markets expect no rate hike until deep into next year.

Weak pay growth, inflation running well below the BoE's 2 per cent target and a poor outlook for the eurozone have convinced most of the MPC's nine members to keep interest rates on hold.

Still, minutes from last month's meeting showed that some of the seven members who have been voting to keep rates on hold were increasingly worried about the risk of inflation pressures building up.

Britain looks set for more fiscal austerity in the coming years that may pressure the BoE to keep monetary policy loose.

Finance minister George Osborne's latest update to his austerity plans, delivered on Wednesday, are set to take public spending as a share of the economy to its lowest level in 80 years, the country's fiscal watchdog said.

The Office for Budget Responsibility also forecast that economic growth is expected to slow from 3 per cent this year - its fastest pace in more than a decade - to 2.4 per cent in 2015 and 2.2 per cent in 2016.

The European Central Bank meets on Thursday too, and is expected to make plain the economic malaise in the eurozone, Britain's biggest trading partner.

Financial markets are pricing in a first BoE interest rate hike around the end of next year or early 2016. Economists polled by Reuters last week said it would come in the third quarter of next year.

Business surveys this week continued to show a strong domestic recovery, even if there are lingering worries about Britain's reliance on consumers to drive the economy.

Britons increased their borrowing at the fastest rate since the financial crisis in October, according to the latest BoE data, while mortgage approvals again slowed.

Figures on Thursday from mortgage lender Halifax showed house price growth slowed again in the three months to November.

The Bank of England has welcomed signs the housing market is cooling off after double-digit price gains earlier this year, restrained in part by new controls on mortgage lending.

Mr Osborne overhauled taxes on property purchases on Wednesday, however, saying 98 per cent of home-buyers will see their related tax bill reduced.

REUTERS