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BoE holds rates amid concerns on wages and oil

BoE holds rates amid concerns

The Bank of England (BoE) left interest rates at record lows on Thursday as it highlighted subdued inflation in the U.K. due to the recent fall in oil prices.

As expected, the bank decided to hold off on adding to the £375 billion ($569 billion) of asset purchases it has unleashed over previous years and kept its main benchmark rate at a record low of 0.5 percent. The decision tallied with a Reuters poll of economists who all predicted that the current rate would remain unchanged.

The bank's monetary policy committee voted by a majority of 8-1 to maintain the bank rate, which again echoed a survey of economists by Reuters. In the minutes of this week's meeting, the policy makers noted that the price of oil had "fallen markedly again," which it said increased the likelihood that headline inflation rates would remain subdued. It also said that nominal wage growth had "leveled off."

"Although the prices of oil and some other commodities had fallen markedly on the month, in large part that was thought likely to have reflected supply conditions rather than further negative news on global demand. The downside risks to growth in emerging market economies remained, however, with the risk of an acceleration of capital outflows in reaction to any increase in U.S. interest rates," the bank's minutes said.

The Bank of England
Alice Tidey | CNBC

Market watchers believe the central bank might be waiting to see what the U.S. Federal Reserve does next week before moving rates, and Governor Mark Carney seems in no rush policy as inflation still remains so low.

However, the minutes on Thursday stated that there was no "mechanical link" between U.K. policy and those of other central banks. It added that U.K. policy stance would be determined ultimately by the inflation outlook in the country.

Recent economic data in the U.K., including some modest growth in wages, had led some economists to cautiously predict a rate hike by mid-2016.

"We believe the Bank of England is more likely than not to edge interest rates up from 0.50 percent to 0.75 percent around May," Howard Archer at IHS Global Insight said in a note on Thursday.

He also expects that the BoE will likely wait for a while to see how the economy reacts to the hike. "It is also very possible that the economy may be hampered by increased uncertainty ahead of the referendum on EU membership that could well occur in the second half of 2016," he said.

Sterling touched a 3-week high against the dollar ahead of the decision on Thursday close to 1.520. However, it fell sharply to session lows after the BoE noted concerns on inflation and wage growth.

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