Base rate has remained at current levels since March 2009, when the MPC first voted to cut rates to record-lows in a bid to help stimulate the economy. On the same day the MPC launched its programme of quantitative easing.
The quantitative easing programme was increased by £50bn to £375bn in July 2012, though the committee has voted in factions since then with some members, including former governor Mervyn King, voting in favour of a further increase to the programme.
Last month, the BoE said it would keep base rate at 0.5 per cent until the UK’s unemployment rate falls below 7 per cent, or unless inflation spikes. The BoE is also prepared to add to QE while the unemployment rate remains above its desired level.
However, BoE governor Mark Carney added that the MPC will have to consider rate changes if inflation is expected to go beyond 0.5 per cent of its target in 18-24 months or if there are any threats to financial stability.
The use of forward guidance, which was widely expected by the market, follows similar action by the Bank of Japan in 1999 and the US Federal Reserve in 2012. Carney also implemented forward guidance at the Bank of Canada in 2009 when he was governor.
The BoE expects median unemployment to stand at 7.3 per cent over the next three years, the Inflation Report shows, meaning the base rate is likely to remain at its historic low throughout the forecast period.