- James Knightley, ING
The Bank of England's rate-setting body voted to keep its asset purchase target as well as interest rates untouched at the record low of 0.5%, despite increasing calls by some policy makers for a change in the policy. In line with expectations, the central bank decided to refrain from adding to the £375 billion ($628 billion) of asset purchases it has unleashed over previous years. Despite not announcing any change in policy, the "Old Lady of Threadneedle Street" is poised for action in the foreseeable future. Investors will have to wait almost two weeks to find out if any more policymakers voted in favour of raising interest rates, after two of the nine MPC members broke ranks in August. With economic growth set to reach more than 3% this year, economists expect the BoE to raise interest rates in early 2015, probably a few months before the U.S. Federal Reserve. However, there are risks to that view, both from home and abroad. While activity in the services sector that accounts for the majority of Britain's economy grew at the fastest pace in a year in August, waning growth in manufacturing added to a sense that the recovery, while still being strong, is still too dependent on U.K.'s big-spending consumers rather than business investment or exports.
From the political perspective, Scotland's independence referendum on September 18 could deliver the most immediate shock to the economy. On top of that, a stagnant Euro zone economy, Britain's biggest export market, is another cloud on the horizon for the BoE.
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