Bank of England holds interest rate at 0.5% as low inflation levels worry MPC

Interest rates in the UK will stay at their record low level of 0.5% after the Bank of England decided to keep the rates unchanged. The central bank's Monetary Policy Committee (MPC) backed the move eight to one, with only Ian McCafferty pushing for a hike.

The markets expected the 8 October decision after the rate had remained the same for more than six years and recent poor economic data, including the CIPS/Markit purchasing managers' index (PMI) survey and the International Monetary Fund (IMF) downgraded the UK's growth forecast, indicated that a rise was unlikely.

The MPC also voted unanimously to maintain its quantitative easing programme of £375bn ($574bn), a measure introduced in a bid to stimulate the British economy after the financial crisis of 2008. But the bank, which is also tasked with keeping Consumer Price Index (CPI) inflation at 2%, warned that prices would remain close to the current rate of 0% before "picking up around the turn of the year".

"CPI inflation was likely to remain close to zero before picking up around the turn of the year. But it now appeared likely to remain below 1% until spring 2016," MPC minutes said.

"The outlook for inflation in the medium term, after the direct effects of past movements in international energy and food prices have washed out of the annual comparison, was of more relevance to the setting of monetary policy, however.

"At that horizon, the path of inflation would reflect the balance of two opposing forces: the extent to which domestic costs pressures built, set against any persisting external dis-inflationary pressure."