In the minutes of the latest MPC meeting, members agreed that low inflation might persist for longer than previously expected following a drop in CPI growth to its lowest level since records began in 1996.
Ian McCafferty and Martin Weale maintained that the sharp fall in inflation was "probably driven largely by temporary factors and was unlikely materially to affect the behaviour of households and businesses in such a way that it became self-perpetuating", but agreed that the bank rate should be maintained at 0.5%.
According to the MPC minutes, the fall in CPI inflation to 0.5% was in line with Bank staff’s expectations and was likely to have largely reflected lower fuel prices and utility price increases in December 2013 dropping out of the annual comparison. CPI inflation was expected by Bank staff to reach a trough of around zero in March, as lower oil prices fed through to petrol prices, with a roughly even chance that it would temporarily dip below zero at some point in the first half of 2015.
The meeting concluded by stating that "when Bank Rate did begin to rise, it was expected to do so only gradually, and more slowly than in previous cycles. Moreover, the persistence of those headwinds, together with the legacy of the financial crisis, meant that Bank Rate was expected to remain below average historical levels for some time to come."
