However, reflecting concerns about the global outlook, the MPC admitted that the path for Bank Rate implied by market yields has fallen and now "embodies an even more gradual pace of tightening than at the time of the previous Report".
Twelve-month CPI inflation fell to -0.1% in September, from zero in August. The MPC admitted that the outlook for global growth has weakened since the August Inflation Report, and now expects the overall pace of UK-weighted global growth to be more modest than had been expected in August.
Although it has moderated, the MPC said that growth is projected to pick up a little towards the middle of next year. CPI inflation is expected to remain below 1% until the second half of next year, reflecting the continuing drag from commodity and other imported goods prices.
In the Committee’s judgement, inflation will still return to its 2% target in two years and then rise a little further above it.
Ian McCafferty preferred to increase Bank Rate by 25 basis points in the latest meeting, given his view that the path of domestic costs was more likely to lead to inflation exceeding the target in the medium term than was embodied in the Committee’s collective November projections.
All members agree that, given the likely persistence of the headwinds weighing on the economy, when Bank Rate does begin to rise, it is expected to do so more gradually and to a lower level than in recent cycles.
Barry Naisbitt, Chief Economist at Santander, commented:
"It was no surprise that the Monetary Policy Committee once again decided to hold the Bank Rate at 0.5% today. With inflation just slightly negative in September and uncertainties about global economic prospects having been a feature of the last few months, the MPC was unlikely to change the decision taken last month.
"While the positive news from the activity indicators reported this week hints that the slowing in quarterly GDP growth seen in the third quarter – to 0.5% from 0.7% in the second quarter – might reverse, inflation remains well below the 2% target rate. This month the Inflation Report probably takes centre stage and it provides the Bank of England with an opportunity to set out the extent to which it sees any changes to the prospects for UK growth and inflation and also the global and domestic uncertainties that the economy faces."
