Interest rates to remain at 0.5%

<p>The Bank of England’s Monetary Policy Committee voted 8-1 to keep rates on hold.</p>

The UK's interest rates have been held at 0.5 per cent, following a vote by the Bank of England's Monetary Planning Committee (MPC).

Members of the MPC voted 8-1 to keep the rates flat – but this is the first time in months the group has not been unanimous in its decision. Ian McCafferty voted for an increase.

The latest Inflation Report from the Bank called the outlook for inflation "muted" and analysts believe this could mean that rises in interest rates could be delayed.

Lucy O'Carroll, chief economist at Aberdeen Asset Management, told the BBC: "Those analysts who predicted a rate rise this year may be on the brink of having to rip up their predictions."

Bank governor Mark Carney believes that a rise is "drawing closer". During a news conference, he explained that a rate increase could not be predicted in advance. He also said that the decision would be determined by looking at economic data such as wage growth, productivity and import figures.

The Bank of England has also said that it expects inflation to be back to its two per cent target within two years.

What's preventing inflation?

One current barrier to higher inflation is low oil prices and energy costs in general. The value of sterling has also risen around 3.5 per cent since May.

When rate increases do start again, Mr Carney says they will be gradual and "below past averages".

Commenting on the vote, John Longworth, director general of the British Chambers of Commerce agreed with the decision.

"It would have been imprudent to push through a rate rise at this moment when our economic recovery remains in need of care and encouragement," he said.

The MPC also voted – this time unanimously – to hold the UK's bond-buying programme at £375 billion.

Following the announcement, the pound dropped against other currencies. It fell by a cent against the dollar, before rallying slightly to $1.5511. It was also down by around one euro cent against the euro at €1.4218.

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.