BoE minutes show unanimity on holding firm on keeping interest rates low

LONDON – Bank of England policymakers voted unanimously to keep monetary policy unchanged despite growing signs that Europe's third-largest economy is on the mend.

The minutes of the Nov. 6-7 Monetary Policy Committee minutes, published Wednesday, showed that the nine-member panel thought the economic recovery was gathering pace — it grew a quarterly rate of 0.8 percent in the third quarter. However, they voiced "uncertainties over the durability of the recovery," particularly in regard to the economic outlook in Europe.

Given that backdrop, they voted to keep the Bank's key interest rate unchanged at the record low of 0.5 percent and not to increase the monetary stimulus. So far 375 billion pounds ($600 billion) has been pumped into the British economy in an attempt to keep market rates low and encourage lending.

"The U.K. economy remained vulnerable to disorderly adjustment in the euro area and in some emerging economies," the minutes said.

Though the 17-country eurozone has emerged from its longest-ever recession, growth is muted — in the third quarter of 2013, it grew by only 0.1 percent from the previous three-month period.

Over the past few years, the debt crisis in the eurozone has been one of the main reasons, along with a government deficit-reduction program and high levels of private indebtedness, that's held back the economic recovery in Britain. Despite the recent pick-up in growth, the British economy remains about 2.5 percent smaller than the start of 2008, before it slipped into its deepest recession since World War II.

Investors aren't expecting interest rates to rise anytime soon because the bank has vowed not to consider any increases until unemployment falls below 7 percent. It is now at 7.6 percent, and the latest forecast suggests the target may be reached by the third quarter of 2015 rather than the original guess of 2016.

Policymakers said that even after that threshold is reached, there's no guarantee that interest rates would rise. "Once unemployment had reached 7 percent, the committee would reassess what it had learned about the nature of the recovery," the minutes said.

Chris Williamson, the chief economist at financial information company Markit, said that if the economy continues to grow, the debate will veer to discussions on whether it would be better to start normalizing policy slowly — and sooner than suggested.

"Such a gradual increase in interest rates, it can be argued, reduces the risk of leaving policy loose for too long, which might then require a sharp shock of markedly higher interest rates to cool the economy again," he said.