Bank of England keeps interest rates at historic low

The Bank of England has decided on no change and kept interest rates at 0.5 per cent.

For the 71st consecutive month, the Bank of England (BOE) held off from action to keep interest rates at the historic low of 0.5 per cent. The bank also decided to leave the quantitative easing (QE) program unchanged.

It seems the global economic environment is adding less inflationary pressures than was previously forecast as the BOE unanimously decided to leave rates unchanged, whereas since August notorious rate hawks Ian McCafferty and Martin Weale had voted to increase the interest rate by 0.25 basis points.

When will the next rate rise occur?

The likelihood of a hike in the interest rate is now being pushed back to later in the year after many economists had been predicting that a rise could occur sometime around mid-year. Some analysts even believe that an interest rate rise might be delayed until 2016, however, they are a small group.

Howard Archer, chief UK economist at IHS Global, believes that a rate hike in late 2015 remains “a very real possibility”.

In fact, he continued to explain the BOE will likely raise rates this year because it "stressed the importance of looking through recent and likely further near-term very weak inflation developments resulting from sharply reduced oil prices” and instead is focusing on the “medium-term inflation outlook”.

Low rates and inflation will boost economy

But a low interest rate and low inflation could fuel a consumer spending boom that could drive the UK’s economic growth higher in 2015. As lower oil prices continue to trickle down through economy it will effectively give businesses a tax cut while making things less expensive for the consumers. Not to forget, the delayed interest rate rise will keep credit cheaper for longer, putting more money in household’s pockets and give the economy a boost.

Furthermore, a round of impressive PMI surveys in January highlighted that businesses have made a strong start to the new year, which will likely see the economy expand more than previously forecast in the first quarter of 2015.