Interest rates are unlikely to rise before early next year, City analysts' reading of the latest minutes of the Monetary Policy Committee suggest – and there is an increasing possibility that another round of quantitative easing could be on the way if the economy remains weak.
Members of the MPC voted by seven to two to keep rates on hold and the £200bn so far directly injected into the economy via QE on pause earlier this month. With now only two members wanting a 25 basis points rise, the vote represents a swing away from monetary tightening, as previously this year the voting has been a consistent six to three.
However, Andrew Sentance's retirement from the MPC means one less advocate of an immediate rise in the Bank Rate, in Mr Sentance's case a 50 basis points hike. Fresher Ben Broadbent voted with the Governor, Mervyn King, his two deputies, the director for markets and one external member to keep rates on hold. Martin Weale, a former director of the National Institute for Economic and Social Research, and the Bank's chief economist, Spencer Dale, were the two hawks.
Interest rates have been at a 315-year low of 0.5 per cent since March 2009.
Again, as in recent months, the Committee voted eight to one in favour of leaving the QE programme on hold, with Adam Posen, an external appointee, arguing once again for another £50bn to be spent by the bank on gilts and other bonds, with the aim of boosting asset prices and stimulating the economy.
In the past Mr Posen has been a lone voice, but now appears more of a prophet. The minutes were notable for the mention of "members" in the plural contemplating more QE. The minutes also noted that "the Committee judged that the downside risks to the prospects for medium-term inflation had increased over the month".
The minutes highlight how the Greek crisis could destabilise everything: "While activity in the euro area as a whole had remained resilient, sovereign debt and banking problems could intensify, perhaps significantly, to the detriment of economic activity and the financial system."
The MPC acknowledged upside risks to inflation from a firming up in inflationary expectations and volatile commodity prices, but, once again, the evidence was that inflation was so far not feeding through to higher pay.
Overall, the softness in the economy is proving a decisive factor in tipping the balance of opinion towards QE: "The current weakness of demand growth was likely to persist for longer than previously thought. The fiscal challenges in the euro-area periphery highlighted the potential for further adverse shocks to demand. For some of these members, it was possible that further asset purchases might become warranted if the downside risks to medium-term inflation materialised."
Paul Fisher, the Bank's director of markets, stressed this week that more QE remains "very much on the table".
Vicky Redwood, the senior UK economist at Capital Economics, said: "The chances of interest rates rising any time soon therefore still look slim. Markets do not have an interest rate rise fully priced in until next August, and only in February do the chances of a rate rise get above 50/50. And if the recovery remains as weak as we expect, QE2 could be the story of 2012."