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Published on September 13th, 2015 | by Pete


Bank Of England Votes Not To Increase Rates

Bank Of England Votes Not To Increase Rates

 For the 79th month running, the Bank of England opted to keep interest rates steady at 0.5%, following an 8-1 vote. Ian McCafferty was the only member to vote for an increase, stating for the second month running that by increasing rates to 0.75% it would allow for a more gradual and easier to manage rate rise. Policymakers reiterated their view that the Chinese economic problems would not cause major problems for Britain or Europe, and that it did not look like it had any major effect all on the economy yet.

 The Vote

 Bank of England policymakers meet every month to vote on interest rates, and to decide whether they should be held at their current level or whether they should be increased or decreased. They currently stand at 0.5%, a level that was set nearly 7 years ago in a bid to stimulate economic activity, but many analysts and economic experts have warned this is dangerously close to zero inflation.

 Analyst Expectations

 Many people have expressed concerns that interest rates are set to increase, along with the current economic problems in China expected by some experts to have a global knock-on effect, and some commentators even pointing to the similarities between China now and the start of the global recession, many had feared that the interest rate rise would come sooner rather than later. Despite these worries, the 9 policymakers convened and voted 8-1 to keep interest rates at their existing level.

 What Increased Rates Mean To Forex

 Lower interest rates mean that people and businesses have greater incentive to borrow money, and less incentive to save money. Therefore, spending is increased, cash flows through businesses and services, and it benefits the economy as a whole. Exchange rates are, essentially, a tradeable and numerical representation of the strength of an economy, so low interest rates tends to mean improved GBP performance. On the day that the Bank of England made the interest rate announcement, Sterling rose and hit a two week high. Such currency fluctuations can be monitored on a trading website like Fx Pro’s.

 In contrast, higher interest rates deter people from borrowing and make saving a more handsome proposition. With money reserved in bank accounts and saving accounts, where it can accrue interest according to the prevalent higher rates, it means that the economy takes a knock.

 Sentiment is important in Sterling movements, and market expectations are equally important. If the market is expecting a rate rise, and the Bank of England announces a rise that it is in line with those expectations, there may not be as significant a movement in exchange rates. This month, there were added concerns because of the Chinese economy and the devaluation of the Chinese Yuan to take into account.

 No Concern Over China Worries

 However, the governor of the Bank of England, Mark Carney, had previously stated that while China’s economy was important, he did not feel that the slowing of economic growth in the country would affect the UK. The minutes of the meeting of the Monetary Policy Committee confirmed that they were not overly concerned by the recent turbulence, nor by its knock-on effects to global markets and other economies.

 The minutes of the meeting also suggested that interest rate rises would be likely to start at the beginning of 2016, and that the group still expected this to happen. Analysts and economists are in agreement with this assessment, which means that many will continue to borrow for the next few months, and try to ensure that they get financial products and rates locked in before they rise in four months’ time.

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