Interest rates left unchanged amid fears emerging market slowdown could hit UK

Bank of England keeps rates at a historic low as weakness in China and other emerging market economies threaten to derail UK growth

Chinese flags are seen outside Buckingham Palace and infront of Big Ben in London
China weakness could delay UK interest rate rises further Credit: Photo: AFP

Weakness in emerging market economies could dampen growth in the UK, the Bank of England warned as it announced its decision to keep its interest rates on hold.

The Bank's Monetary Policy Committee (MPC) - which decides on interest rates - voted eight to one to keep the base rate at 0.5pc, citing concerns about a worsening global environment.

Policymakers warned that the slowdown affecting many economies across Asia, notably China, comes as the UK is also showing signs of softer growth.

The UK economy may have expanded by just 0.5pc in the third quarter, 0.2 percentage points slower than in the second quarter.

The MPC has warned that "were the slowdown currently underway in a range of emerging economies, including China, to intensify", this could slow UK GDP growth even further.

It is feared that China - the world's second biggest economy - is losing steam more quickly than expected. This is already having a knock-on effect on the rest of the world as many countries rely on China for their exports.

In August, hundreds of billions of pounds were wiped off global markets in one day, dubbed ‘Black Monday’, after China's central bank took the surprise decision to devalue its currency.

This revaluation set off a wave of panic selling in emerging market currencies, which spread to global indices, leading to sharp falls on stock markets around the world.

Ian McCafferty, an external member of the MPC, was the only member to push for a rate rise. He voted to raise the Bank rate by 0.25 percentage points.

He argued that "building domestic cost pressures were likely to come to outweigh the dampening influence of the appreciation of sterling".

This would, in turn, cause inflation to overshoot the Bank's 2pc medium-term target, he said.

All members of the MPC agreed that once rates do begin to rise, they should so so "more gradually and to a lower level than in recent cycles".