LONDON: Bank of England policymakers voted 8-1 to keep rates at a record-low 0.5 percent this month, and most saw a relatively soft outlook for inflation, suggesting they are in no hurry to raise interest rates.
The central bank said cost pressures in Britain's labour market were rising too slowly for inflation to return to its 2 percent target, especially given the past strength of sterling, and that inflation would stay below 1 percent until spring 2016.
British inflation fell back to zero in August, but officials had been confident that robust domestic growth and the fading effect of last year's big oil price falls would cause it to bounce back towards its 2 percent target next year.
Official data last week showed unit labour cost growth jumped to 2.2 percent in the second quarter of 2015, more than double the rate the BoE had previously estimated, but the BoE said this overstated the true strength of cost pressures.
"Increases in unit labour costs remained lower than would be consistent with CPI inflation returning sustainably to the 2 percent target, were they to persist at current rates," the BoE said.
One of the nine-member Monetary Policy Committee, Ian McCafferty, dissented with the majority outlook and voted for a quarter-point rate rise for a third month in a row, saying inflation would probably overshoot its target due to building domestic cost pressures.
Financial markets have meanwhile pushed back their bets on when British rates will start to rise to the tail end of next year or even early 2017, on the back of slowing job creation in the United States.
But most economists still think a rate rise is likely early next year, though some are starting to forecast a slightly later move as doubts mount about whether the US Federal Reserve will tighten policy before the end of 2015.
Policymakers were fairly relaxed about overseas developments, saying there was little evidence so far that a slowdown in emerging markets was having much impact on advanced economies, though some thought the outlook was a bit weaker than in the BoE's last set of quarterly forecasts in August.
Recent revisions to official data suggested that Britain's domestic economy was cooling slightly after a period of above average growth, which -- combined with ongoing government spending cuts -- "might presage a slightly weaker outlook".
But the data could also be consistent with existing BoE forecasts for growth to cool slightly as the economy recovered from the financial crisis.
Parts of the labour market were showing signs of skills shortages, but productivity was picking up, neutralising some of the impact of higher wages.
On Wednesday the National Institute of Economic and Social Research estimated quarterly growth had fallen to 0.5 percent in the three months to September from 0.7 percent in the previous quarter, but kept its 2.5 percent forecast for 2015 as a whole. The BoE said it expected growth of 0.6 percent in Q3.
In August BoE Governor Mark Carney said the timing of the BoE's first rate rise since 2006 would come into sharper focus around the turn of the year.
He is due to speak at the International Monetary Fund's annual meeting in Lima later on Thursday, but is unlikely to give more detailed timing before the BoE's quarterly forecast update in November.
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