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Last Updated: Thursday, 7 September 2006, 11:39 GMT 12:39 UK
UK rates left unchanged at 4.75%
Graph showing Band of England rate rises
The Bank of England has left UK interest rates unchanged at 4.75% following its latest meeting.

The move was widely expected after last month's surprise rate rise, but many analysts still expect a further rise in rates before the end of the year.

In August, the Bank raised borrowing costs to 4.75% from 4.5%, its first increase in two years.

A further rise will depend on consumer spending and the strength of the housing market, analysts say.

Watching the figures

"The interest rate hike in August was partly pre-emptive, and the Bank has indicated that it does not have a pre-determined timetable over the extent and timing of any future interest hikes," said Howard Archer of Global Insight.

The true impact of last month's increase is still to be fully felt
Drew Wotherspoon, John Charcol mortgage advisers

"Indeed, it has stressed that future interest rate movements will be driven by how the data pans out," he added.

"We currently forecast a 25 basis point hike to 5% in November, but we then expect interest rates to remain at that level for some considerable time," Mr Archer said.

The worry for analysts is that borrowing costs might climb too high too quickly, snuffing out the UK's economic growth.

"The true impact of last month's increase is still to be fully felt," said Drew Wotherspoon of mortgage adviser John Charcol.

"If the strong growth in the housing market reported by leading industry bodies continues for the next month, then this, coupled with the next quarterly inflation report, makes November the most likely time for another quarter-point rise."

The Halifax, the UK's largest mortgage lender said that while house prices rose by 1% in August there were signs that growth had continued to "moderate", hampered by the higher interest rates and energy bills.

Mixed picture

The latest Office for National Statistics (ONS) figures showed that inflation was 2.4% in July, down from 2.5% the month before but still above the government target of 2%.

The Bank itself has raised the prospect that inflation could rise as high as 3% should fuel and commodity costs continue to rise.

At the same time, manufacturing industry surveys have offered a mixed picture on the health of the UK's industrial sector.

On the plus side, the CBI reported unexpectedly strong order books for August while the ONS said output had risen for a third consecutive month.

However, figures from the Chartered Institute of Purchasing and Supply warned manufacturing activity slowed to its weakest pace for five months in August as exports fell.

Meanwhile, fears of a possible slowdown in consumer spending have been raised as households battle against rising bills and energy costs.

On Wednesday, the British Retail Consortium said sales growth on the High Street had slowed in August and said the outlook for the next few months was "very uncertain".

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