Bank of England policymakers decided to leave the key rate at a historic low of 0.50 percent in a split vote for the fifth straight time at the meeting held on December 3 and 4.
The Monetary Policy Committee governed by Mark Carney voted 7-2 to retain the base rate at 0.50 percent, the minutes showed Wednesday. Ian McCafferty and Martin Weale sought a quarter point hike for the fifth straight meeting.
Regarding the asset purchase programme, the MPC unanimously decided to maintain it at GBP 375 billion.
“A premature tightening in monetary policy would leave the economy vulnerable to shocks, with the scope of any stimulus that subsequently became necessary being limited by the effective lower bound on interest rates,” the minutes said.
McCafferty and Weale said economic circumstances continued to justify an immediate rise in the interest rate. They assessed that even after a rise of 25 basis points, the monetary policy would remain extremely supportive.
The most significant development since the last meeting had been the continued sharp fall in crude oil prices and further reductions in market interest rates, the minutes said.
Policymakers noted that the expected near-term profile of inflation was somewhat weaker than had been assumed at the time of the November Inflation Report.
The MPC assessed that the reduction in oil prices, if sustained, would act as a stimulus to growth in the U.K. and its main trading partners. The bank expects the British economy to grow around 0.6 percent in the fourth quarter.
Recent signs of a pickup in wage growth were promising, the minutes said. The pay growth was seen as only roughly in line with, rather than in excess of, productivity growth. Further increases in pay growth would be required to be consistent with the 2 percent inflation target in the medium term, the minutes said.
Samuel Tombs, a senior UK economist at Capital Economics, said the minutes suggests that the recovery in real wages will have to strengthen further before a majority will vote to raise interest rates.
IHS Global Insight’s Chief UK Economist Howard Archer said there is obviously a very real possibility that the BoE will hold fire until the fourth quarter of 2015 or even until early 2016. Much will likely depend on just how much UK wage growth picks up as 2015 progresses.
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