Governor Mark Carney also lowered economic growth projections for the UK to .5% this year, 2.9% next year, and 2.6% for each of the following two years.
Carney added that he did not expect inflation to reach the targeted rate of 2% for another three years.

Carney said that UK economic growth would be dented by the weakness in the Eurozone, but there were three factors that suggested the UK could grow at above-trend growth rates in the face of lower global demand.

– Real take home pay growth is in prospect. 700,000 new jobs have been created in the last year and confidence is returning to the labour market. There are tentative signs of a pickup in wage growth. Real incomes will be further supported by lower energy, food and other import prices. The MPC expects annual real pay growth to pick up from around zero now to around 2% by the end of next year.

– Despite developments abroad and a larger-than-anticipated slowing in the housing market, consumer confidence is being supported by the combination of lower effective interest rates, a strong labour market and improved pay prospects. During the transition to higher incomes, the household saving rate is likely to continue to drift down to relatively low levels, supporting the growth of demand.

– Investment growth is strong. Although growth is slowing, investment is expected to continue growing at well above its historical average rate. That reflects expanding demand, improved credit conditions and the clarity that interest rate increases are likely to be gradual and limited.

Helal Miah, investment research analyst at The Share Centre, commented on the figures: “This morning the market has received mixed news from two important UK economic releases, UK jobs data and GDP figures, which overall downgrades expectations due to weaker global conditions.

“As expected the claimant count pointed to further improvements in the underlying health of the UK economy as the number of people looking for work, but still on benefits, fell by 20,400 in October. This good news helped the rate of unemployment stick to a low of around 6% since the financial crisis. More importantly the rate of wage growth was 1.3%, above the CPI rate for the first time in five years.

“While there is still slack in the labour market, these figures potentially point to good news for those in work as they may finally begin to see a meaningful rise in salaries. In the short to medium term we expect this dynamic to improve further as we believe the rate of inflation will fall under greater pressure in the coming months. This is especially the case as oil prices have taken a tumble since the summer and it has been indicated that the rate of wage growth is set to improve further. Supporting this, in the inflation report also released this morning the Bank of England highlighted they expect inflation in the final quarter of this year to hit 1.2%.”

Andy Scott, associate director at HiFX, said: “UK unemployment is continuing to fall – albeit at a slower rate. We’re now seeing average earnings heading back up after hitting a record low in August. Rising earnings are a good thing as far as the economy is concerned, easing downwards pressure on households’ disposable income, leading to increases in consumer spending. However, earnings still have to rise further before they match inflation, and that’s a core focus for the Bank of England. Today’s quarterly inflation report revealed that the Bank expects the dip in inflation to continue, maintaining their positive GDP growth outlook – however, with only a 0.1% drop in its forecast for next year to 2.9%.

“As inflation slows and global growth risks increase, there will be less pressure to raise rates even if the economy remains on its forecasted growth trajectory. Although the overall tone of the report was expected, sterling fell from its intraday highs against the dollar, and the euro by around 0.5% to 1.5870 and 1.2735 respectively. The upside of potential higher interest rates for the pound has been diminished by the declining trend in inflation. However, the economy still looks in good shape, especially compared to the eurozone. We maintain a favourable bias for GBP/EUR towards €1.35 into next year and expect GBP/USD to recovery marginally back over the €1.6 level.”