Bank chief Carney's warning as interest rates stay on hold at 0.5%

Bank of England governor Mark Carney has said he still sees the need for gradual interest rates rises to bring inflation back to target, but latest forecasts signal a hike in the cost of borrowing may not come for another year.

Mr Carney, who previously said the decision on whether to raise rates would come into "sharper relief" around the turn of the year, said the economic picture had changed in recent months as the global economy has slowed.

He warned the outlook for global growth had weakened since the Bank's last inflation report in August and added thatthere was a risk of a "more abrupt slowdown in China", which could hit UK growth.

His comments follow the Bank's decision once more to keep interest rates at 0.5%, where they have remained for more than six years.

Members of the Bank's nine-strong Monetary Policy Committee (MPC) voted 8-1 to leave rates on hold.

The Bank, which also published its quarterly inflation forecast, downgraded its growth outlook slightly, to around 2.7% for 2015, down from 2.8% previously predicted in August, while also cutting it next year to 2.5% from 2.7%.

The report suggested that rates may potentiallynot rise until 2017 amid global growth concerns and ultra-low UK inflation.

This would be good news for borrowers, but heap further misery on savers.

The inflation forecast shows that, at the time of report, financial markets had pushed their expectations for a rate rise back from the middle of 2016 in August to the first half of 2017.

This follows on from a summer of market turmoil amid concerns over China's slowing economy.

But yesterday's comments from United States Federal Reserve chair Janet Yellen that a US rate rise in December is a "live possibility" has already seen financial markets bring forward their expectations for the UK to follow suit with a hike at the end of 2016.

Mr Carney also stressed that if rates did not rise until the first half of 2017, inflation is predicted to overshoot its 2% target.

He said: "We are in a situation where we have resilient domestic demand and, even in the face of global weakness, we still see the need for gradual interest rate rises to bring inflation back to target."

He said it was a "reasonable expectation" that rates may rise at some stage within the next year.

The pound fell a cent against the euro and the dollar, at just over 1.40 and just under 1.53 respectively following the inflation forecast.