MercoPress. South Atlantic News Agency

Bank of England leaves rates unchanged but deflation fears persist

One factor in keeping inflation low has been the 25% fall in the oil price since the summer, which has cut fuel prices at the pump for motorists.

UK interest rates have been held at a record low of 0.5% for another month by the Bank of England. It also decided to maintain its quantitative easing program, designed to stimulate lending in the economy, at the £375bn already spent.

 The Bank's Monetary Policy Committee has held rates at 0.5% since March 2009 to try to help economic recovery. Until recently rates were expected to rise early next year, but analysts now think this could be pushed back.

The Bank warned last month that the inflation rate could fall to as low as 1% in the coming six months, well below its 2% target rate. One factor in keeping inflation low has been the 25% fall in the oil price since the summer, which has cut fuel prices at the pump for motorists.

Fierce competition between supermarket chains has also meant cheaper food for consumers.

Chris Williamson, chief economist at research firm Markit, said the downward pressures on prices gave the Bank leeway to keep rates low, “therefore increasing the likelihood of the current growth spurt being sustained”.

Howard Archer, an economist at IHS Global Insight, said: “It would now be a surprise if the Bank of England raised interest rates before the latter months of 2015, especially given the disinflationary pressures coming from very low oil prices.

”It looks highly improbable that there will be an interest rate hike before the May 2015 general election.“

Economic surveys released earlier this week suggested that economic growth was holding up, with the dominant services sector strengthening in November.

The purchasing managers' surveys from Markit indicated economic growth of 0.6% in the final three months of this year, the research firm said, slightly lower than the 0.7% rate recorded in the third quarter.

The chancellor said in the Autumn Statement on Wednesday that the UK economy would grow by 3% this year, up from a previous forecast of 2.7%, with growth of 2.4% next year.

Last month, two of the nine MPC members, Ian McCafferty and Martin Weale, again voted for a rise in interest rates to 0.75%. The minutes of the MPC meeting said that there had been a ”material spread of views“ on the committee on the risks to the outlook for inflation.

However, they added: ”For most members, the outlook for inflation in the medium term justified maintaining the current stance of monetary policy.” Minutes of this month's meeting will be published on 17 December.