LONDON • Bank of England (BOE) policymakers said yesterday that the British economy's prospects remain positive and that recent market turmoil related to China's slowdown has not shaken their view that the time for a rate increase is approaching.
The nine-member Monetary Policy Committee (MPC) yesterday voted to keep its benchmark interest rate at a record low of 0.5 per cent, with only Mr Ian McCafferty dissenting.
In their discussion, the officials said that any external headwinds must be "weighed against the prospects for a continued healthy domestic expansion".
"Global developments do not as yet appear sufficient to alter materially the central outlook described" in the August Inflation Report, the MPC said.
"But the greater downside risks to the global environment merit close monitoring for any impact on domestic economic activity."
The BOE also stuck to its view that inflation will start to pick up around the turn of the year, though it noted that the drop in oil prices had increased uncertainty about the near-term outlook. It also said there was considerable uncertainty about how the pound's strength will feed through to inflation.
The MPC's view on the economy echoes the one delivered by BOE Governor Mark Carney last month.
He said the BOE could look past the events in China and that the decision on the timing of the first rate increase will come into "sharper" focus at the start of next year.
UK inflation was at 0.1 per cent in July, far below the BOE's 2 per cent goal. The minutes of the meeting showed that while eight members of the MPC favoured no increase to the key rate this month, some saw "continued upside risks to inflation relative to the target".
Mr McCafferty maintained his dissent for a second month, arguing that rising domestic cost pressures meant tighter policy was warranted now. At its September meeting, the MPC voted unanimously to keep the asset purchase facility at £375 billion (S$815 billion).
Sterling extended gains versus the US dollar and approached its strongest level in almost three weeks against the euro after the vote yesterday. Sterling climbed 0.4 per cent to US$1.5432 as at 12.03pm in London after dropping 0.2 per cent a day earlier.
The pound appreciated 0.6 per cent to 72.49 pence per euro, having touched 72.40 pence on Wednesday, the strongest level since Aug. 21.