Savers wanting an early rise in interest rates had their hopes dashed on Wednesday, as it emerged that the two members of the Bank of England’s monetary policy committee who have repeatedly backed higher borrowing costs have changed their minds.
Mark Carney, the Bank governor, has warned the public that with economic growth relatively strong, interest rates will eventually have to rise from 0.5%.
But minutes of the rate-setting MPC’s January meeting showed that Martin Weale and Ian McCafferty, the two hawks who voted for an increase every month from August to November, instead joined the unanimous vote for no change.
It now looks almost certain that the coalition government will see out its entire term in office with interest rates unchanged at the lowest rate in history.
The impact of the falling oil price on the UK economy proved a key factor driving the change of heart, according to the minutes.
“The committee judged that the lower oil price would, if sustained, act as a stimulus to growth in the United Kingdom and its main trading partners via its effect on the costs of production and real incomes”.
With inflation dropping to just 0.5% in December, MPC members were also concerned about the risk of deflation, or falling prices, which are good news for consumers, but can cause severe economic damage if they last for a long period.
via The Guardian
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