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Bank of England holds rates as rise looks further off

Bank of England Governor Mark Carney
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Bank of England Governor Mark Carney

The Bank of England kept U.K. interest rates at their record low for yet another month, after concerns about China led to more caution.

The Bank signaled the status quo may continue for even longer than anticipated on Thursday, with its Monetary Policy Committee (MPC) stressing risks to the U.K. economy were "more to the downside" in September than August.

Concerns about the quality of the U.K's economic recovery, and external factors like the summer's global stock market turmoil, encouraged the decision, according to minutes released by the MPC after its regular meeting on Wednesday.

The committee voted 8-1 to keep rates on hold, with Ian McCafferty, who voted for a 0.25 percent rise in the base rate, the sole dissenter once again. Gertjan Vlieghe, the most recent appointment to the MPC, voted with the consensus as expected. Rates have now been at their record low for six and a half years.

The majority of economists expect the Bank's rate-setting committee to raise interest rates early next year, according to a Reuters poll released on Wednesday, ahead of the decision. However, a growing number are forecasting a much later rise - such as November next year, the call made by Citi economists.

Weaker-than-hoped-for data on the U.K. economy, released on Wednesday, is likely to have tempered the case for a rate rise. Factory output declined by 0.4 per cent in July, worse than the 0.1 per cent gain forecast by economists, and the goods trade deficit widened sharply in July, to £11.1 billion ($17 billion), the biggest shortfall since last July.

The recent stock market turmoil in China, and its potential impact on the U.K., which has actively pursued China as a trading partner in recent years, was also in focus. The MPC concluded it was "too early" to judge the full impact of increased worries about China, but warned of the dangers of weakening world trade and the exposure of some U.K. banks to emerging markets.

There are also concerns about "some underutilized resources" in the U.K.'s economy, where inflation has stayed well below the MPC's 2 percent target. Much of this can be accounted for by low food, oil and import prices.

- By CNBC's Catherine Boyle