MW: Bank of England pushes out timing of rate rise
LONDON--The Bank of England on Thursday signaled that the need to raise borrowing costs in the U.K. anytime soon has receded given the gloomier prospects for global growth, after it held its benchmark interest rate steady.
Within a barrage of forecasts and analysis published on what central-bank watchers have dubbed "Super Thursday," the U.K. central bank presented a more cautious outlook for growth and inflation in the U.K. than it has in months, an outlook that implies borrowing costs are unlikely to rise at least until late 2016.
The BOE's dovish message will likely surprise investors and economists, many of whom were expecting the central bank to indicate that it believed markets had gone too far in pushing back expectations of when rates were likely to rise in Britain beyond next year.
It also highlights a deepening nervousness among officials about the risks too the U.K. stemming from a slowdown in China.
"The outlook for global growth has weakened since the August inflation report," the BOE's Monetary Policy Committee said in a statement, referring to its quarterly collection of forecasts. There remain "downside risks" to global prospects, it said, citing a slowdown in China that is rippling through other emerging markets and bearing down on inflationary pressures worldwide.
In response to this darkening picture, the BOE signaled that it is in no rush to raise its benchmark interest rate, which has been held at 0.5% since early 2009.
Officials' latest forecasts for inflation suggest they will only marginally overshoot their goal of bringing inflation back to 2% over the next two years, even if rates don't rise until early 2017, and increase slowly thereafter. They had previously indicated that the first rate increase could come early in 2016.
Such a path for interest rates "would provide more than adequate support to domestic demand to bring inflation to target," the BOE said. Global factors depressing price-growth mean annual inflation may even fall short of officials' projections, it said.
The BOE repeated its mantra that when rates do begin to rise, increases will be limited and gradual.
The BOE's renewed caution comes as the paths charted by the world's major central banks are increasingly diverging. The Federal Reserve may raise interest rates as soon as next month, while central banks in Europe and China are pursuing more expansionary policies to fuel growth and inflation in their struggling economies.
The pound fell as investors bet the BOE may hold off for longer before raising rates. Sterling was down 0.7% against the dollar at $1.5276.
U.K. government bonds, which benefit from lower interest rates, rose slightly.
Also Thursday, the central bank gave fresh details on how it intends to sell the stock of assets bought in a three-year stimulus push known as quantitative easing. The BOE bought GBP375 billion ($577 billion) of assets, mostly government bonds, and said Thursday it won't begin the process of selling them back to investors until its benchmark interest rate has reached 2%.
