Bank mulls UK rate decision

High Street sales are still growing strongly

UK interest rates are expected to remain unchanged when the Bank of England unveils its latest decision on Thursday.

Bad news from the manufacturing sector on Wednesday has strengthened the view of many analysts that no change will be made.

Figures showed that manufacturing output in the UK fell during March, surprising many experts who had expected to see signs of a recovery.

As a result, the Bank's interest rate-setting body - the Monetary Policy Committee (MPC) - is expected to keep interest rates at their 38-year low of 4%.

Inflationary pressures

UK inflation for March edged slightly ahead, with the underlying rate at 2.3%, up from 2.2% in February.

However, while the figures have added to recent evidence that inflationary pressures are building up, analysts say an imminent rise in interest rates remains unlikely.

The underlying rate of inflation remains under the government's target of 2.5% a year - which the Bank of England is allowed to over or undershoot by a maximum of one percentage point.

Bank deputy governor Mervyn King told the British Chambers of Commerce conference last month that the level of rates in the months ahead would depend on changes in average wages, oil prices, and the value of the pound.

He said the recent boom in consumer spending and house prices is likely to slow, partly as a result of tax increases announced in Chancellor Gordon Brown's budget.

Complex issues

Last month, the British Retail Consortium said that High Street sales grew at their fastest monthly rate in March since 1996.

Finding a balance between needs of the buoyant service sector and sluggish manufacturing is one of more complex issues the MPC will have to address during its meeting.

Analysts expect the next change in interest rates to be upwards - but no move is expected until later in the year.