The Bank of England left interest rates on hold today as it forecast a slowdown for UK economic growth in the third quarter amid increasing risks from turbulent global conditions.
Members of the Bank's Monetary Policy Committee (MPC) voted 8-1 to leave rates on hold at 0.5%, where they have been since 2009, mirroring the voting numbers last month.
Minutes of the MPC meeting revealed that the Bank has now downgraded its forecast for UK gross domestic product (GDP) growth in the third quarter from 0.7% to 0.6% after weaker than expected recent economic data.
This would be a slowdown from 0.7% growth in the second quarter.
Meanwhile the MPC found that overall risks from the world economy had "probably increased" amid signs of slowdown in China, which has caused severe market turbulence in recent weeks, and the prospect of a coming interest rate hike in the US.
UK economic recovery and an acceleration in wage growth in recent months has added to the argument for a rate hike to keep inflation below its 2% target in coming years.
But the slide in inflation to near zero has eased any immediate pressure on policymakers for a rate rise.
Today's minutes showed Bank officials judged the upturn in wage costs was still not strong enough to see inflation returning to that level.
However, one MPC member, Ian McCafferty, judged that there were signs of building inflationary pressure, while it was "premature" to assume that turbulence in China would have an effect on this.
He voted to raise rates to 0.75%.
Some of the other members also saw risks of higher inflation but still voted to leave rates on hold for now.
Markets have pencilled in a UK rates rise for early next year, while there is also speculation that in the US, rates could be hiked by the Federal Reserve possibly as soon as next week.
A UK rate hike will mean greater borrowing costs for mortgage holders and other large loans, but provide some relief to savers whose nest eggs have been eaten away by low rates.
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article