Central Banks

Bank of England holds fire on interest rates

BoE keeps base rate remains unchanged
BoE keeps base rate remains unchanged

The Bank of England held its benchmark interest rate at a record low on Thursday, prompted by feeble wage growth, relatively low inflation and stagnation in the euro zone.

As expected, the central bank kept its base rate at 0.5 percent; its been at this level since March 2009. The bank also maintained its bond portfolio at £375 billion ($588 billion).

The policy decision came at a time when the U.K. is posting respectable economic growth, but inflation and wage growth remain below target. The central bank has stated that any future rate hike would be contingent on recovery in wage growth, which is at a fledgling stage—last month, Bank of England Governor Mark Carney said the U.K. was seeing "the start" of real pay growth.

Meanwhile, inflation remains below the central bank's 2 percent target—although the rate is far higher than those in many of the U.K.'s European neighbors. The U.K. Consumer Prices Index (CPI) grew by 1.3 percent in the year to October 2014, up from 1.2 percent in September.

A man sits on a bench outside the Bank of England in London.
Ben Stansall | AFP | Getty Images

Economic growth has proved stronger than anticipated however. The U.K. economy grew by 0.7 percent between April and June this year, quarter-on-quarter. In his Autumn Statement on Wednesday, Chancellor of the Exchequer George Osborne upped his growth forecast for 2014 and 2015 to 3 percent and 2.4 percent respectively.

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In an interview with CNBC on Wednesday, U.K. Business Secretary Vince Cable highlighted that Britain's economy was the fastest-growing in the Western world—a view that has been endorsed by the International Monetary Fund.

With this in mind, a number of the bank's policy committee are warming to a rate hike. Minutes from Thursday's monetary policy meeting will not be published until December 17, but those from November showed that two out of nine members—Ian McCafferty and Martin Weale—voted once again to raise rates to 0.75 percent.

In the meantime, attention will shift to the bank's fourth-quarter bulletin, which is focused on monetary and financial stability, out next Monday.