"The deterioration in Europe will be on their radar"
- Victoria Clarke, an economist at Investec Securities
The Bank of England left its benchmark interest rate at a 320-year low amid sluggish growth in the neighbouring Euro zone and signs domestic growth is losing steam. Policy makers of the MPC agreed to keep the interest rate at 0.5% and stick to the size of BoE's bond portfolio at 375 billion pounds.
The outlook in the Euro bloc continues to deteriorate even after ECB President Mario Draghi unveiled unprecedented stimulus to help stave off deflation. In contrast, investors anticipate the BoE will increase the benchmark rate form the historic low in the first quarter, outpacing the Fed by three to six months. The UK economy grew at an annualized rate of more than 3% in the first half of 2014 and is expected by the International Monetary Fund to be the fastest-growing developed economy for the year as a whole. The think-tank, in its latest forecasts, said it forecasts the UK to expand 3.2% in 2014, a faster pace than outlook for the US, Germany or France. BoE officials are contrasting UK's rapid growth and falling unemployment rate with slow wage growth and other signs of economic slack, which indicate the economy can keep growing without stoking inflation. Annual inflation came at 1.5% in August, considerably below the BoE's 2% target. There are also external risks, as the world economy is slowing, which could derail the UK recovery and potentially delay the need for a rate lift.
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