Bank votes 8-1 to keep UK rates at record low

UK interest rates have been held at 0.5% again by the Bank of England's Monetary Policy Committee (MPC).

MPC members voted 8-1 to keep rates on hold - the first time for months the decision has not been unanimous - with Ian McCafferty voting for an increase.

In its latest Inflation Report, the Bank said the outlook for inflation was "muted", leading some economists to say a rate rise could now be delayed.

However, Bank governor Mark Carney said a rise was "drawing closer".

Aberdeen Asset Management chief economist Lucy O'Carroll said: "Those analysts who predicted a rate rise this year may be on brink of having to rip up their predictions."

Many analysts had anticipated that two or three policymakers would vote for a rate increase.

But the Bank said a collapsing stock market in China and continuing talks over Greece's debts mean the outlook for global growth was muted.

Energy prices fall

The Bank of England said it expected inflation to be back to its 2% target in two years' time.

Standing in the way of the Bank's desire for higher inflation is a drop in oil prices and energy costs in general, as well as a rise in the value of sterling, which the Bank estimates has risen 3.5% since May.

The timing for a Bank rate increase is "drawing closer", Mr Carney said in a news conference, but cannot "be predicted in advance". The decision would be determined by looking at economic data, he added, including wage growth, productivity and import figures.

The increases, when they came, would be "gradual" and limited to a level "below past averages", he said, which is in line with his previous forecasts of how rates will change.

Economy 'in need of care'

This Thursday marks the first time the Bank has released the monthly rate decision at the same time as the minutes of the Bank's Monetary Policy Committee meeting, without the hitherto normal fortnightly gap, and has been named by pundits as Super Thursday.

"It would have been imprudent to push through a rate rise at this moment when our economic recovery remains in need of care and encouragement," said John Longworth, director general of the British Chambers of Commerce.

"Rates will eventually have to rise and when they do, it should be done slowly and steadily. Until that moment, the Bank of England is right to keep interest rates at current levels."

The MPC voted unanimously to continue to hold the UK's bond-buying programme at £375bn.

The pound fell sharply against other currencies as analysts put back their forecasts of when the Bank might start to raise rates.

Sterling fell by a cent against the dollar before recovering slightly to stand at $1.5511, and was down nearly one euro cent against the euro at €1.4218.

Analysis: Robert Peston, BBC economics editor

There is what to many will look like a contradiction at the heart of the Bank of England's voluminous pronouncements on inflation and interest rates.

On the one hand, it expects price changes to be zero or even negative - or well below the 2% target - for longer than it predicted back in May (and actually nought over the next couple of months).

But the Bank also expects inflation to return to target on the basis of interest rates that could rise a bit faster next year than it had been anticipating.

That said, don't panic if you have a mortgage - the Bank's forecasts are based on the assumption that the interest rate it controls, Bank Rate, will rise just 0.25% in the first four months of next year and could double from 0.5% to 1% by the end of 2016.

So if banks and building societies simply pass on this increase in their borrowing costs to customers, mortgage rates would rise by 0.5% next year.

Read Robert's blog in full