The Bank of England (BOE) left its benchmark Bank Rate steady at 0.5 percent, as widely expected, but acknowledged that the prospects for higher inflation had weakened since August and it was more likely that inflation would remain below 1.0 percent into the second half of 2016 due to low oil prices and the impact of a higher sterling exchange rate.
The BOE's Monetary Policy Committee (MPC) once again voted by 8-1 to keep the rate at the level it has been at since March 2009, with Ian McCafferty for the fourth month in a row voting to raise the rate by 25 basis points, arguing that domestic costs would push up inflation.
But in its latest inflation report, the BOE lowered its mean forecast for inflation to 0.1 percent by the fourth quarter of this year from the August forecast of 0.3 percent, with the forecast for Q4 2016 inflation cut to 1.1 percent from 1.5 percent in light of the drag from lower commodity prices.
U.K. headline inflation was minus 0.1 percent in September, down from zero in August.
First by the fourth quarter of 2017 is inflation expected to reach the BOE's target and hit 2.0 percent, slightly below the August forecast of 2.1 percent and then hit 2.2 percent in Q4 2018.
The U.K. central bank acknowledged that worries over the outlook for China and other emerging market economies had eased since the summer but noted that there were still risks to its economy from a more abrupt slowdown in emerging markets.
Reflecting the global slowdown, the BOE trimmed its forecast for growth to average 2.7 percent this year, down from the August forecast of 2.8 percent, and the 2016 forecast was cut to 2.5 percent from 2.6 percent.
But domestic demand in the U.K. remains resilient, the BOE said, and should eliminate the margin of spare capacity in the economy over the next year so wage growth picks up relative to productivity growth, leading to domestic cost pressures.
The forecast for economic growth in 2017 was raised to 2.6 percent, up from 2.5 percent in August, and then remain at 2.5 percent in 2018.
In the third quarter of this year, the UK Gross Domestic Product grew by 0.5 percent from the second quarter for annual growth of 2.3 percent, down from 2.4 percent.
The Bank of England released the following policy statement: