Interest rates expected to remain at 0.5%


Interest rates are expected to remain on hold next week when the Bank of England delivers its latest policy decision amid mounting concern that the economy is slowing down amid a renewed period of uncertainty.

Rates have remained unchanged at 0.5% for more than six years and are not expected to rise until next year.

The Bank's Monetary Policy Committee (MPC) on Thursday is likely to weigh up developments such as accelerating wage growth and the country's recovering economy, against the global turmoil caused by China's slowing trade performance and the UK's sluggish export growth.

Economists at Investec forecast the MPC will vote eight to one in favour of keeping rates unchanged, mirroring last month's vote.

It expects only MPC member Ian McCafferty will continue to dissent on the "no change" position, although MPC members Martin Weale and Kristin Forbes have both indicated that interest rates will need to rise sooner rather than later.

Economists said disappointing global manufacturing data in recent days will ease the pressure on MPC members to lift interest rates.

In the UK employment in the manufacturing sector fell for the first time in two-and-a-half years at the end of a "lacklustre" September, according to the closely-watched CIPS/Markit purchasing managers' index (PMI) survey.

It posted a reading of 51.5 in last month - where 50 separates growth from contraction. This is down from a revised reading of 51.6 in August.

The report added September rounded off one of the weakest quarters during the past two years, which saw factory job losses registered for the first time since April 2013.

It blamed the strong pound and weak export orders for the slowdown.

This report came amid a raft of weak manufacturing data from China, the US and the eurozone.

Job growth in the US, the world's powerhouse economy, slowed in September, and job gains for July and August were lower than previously thought, a sour note for a labour market that had been steadily improving.

The US added 142,000 jobs last month, although the economy has put on an average of 198,000 new jobs a month this year.

Official data from the Office for National Statistics data recently confirmed UK gross domestic product (GDP) growth of 0.7% for the second quarter, driven by the dominant services sector, up from a disappointing 0.4% in the first quarter of the year.

But signs such as slowing retail sales and disappointing construction data point to a slowing of third quarter GDP, perhaps to 0.5%.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "There can be little - if any - doubt that the Bank of England will keep interest rates unchanged at 0.5% at the conclusion of the October MPC meeting on Thursday."

Mr Archer added that it is "currently an extremely tight call" as to whether the Bank of England lifts interest rates from 0.5% to 0.75% around February, or holds fire until nearer mid-2016.

The MPC is also expected to vote nine to zero in favour of keeping the UK's quantitative easing total at £375 billion.