Rates hike unlikely as UK growth poised for drop

The Bank of England's Monetary Policy Committee is expected to hold UK interest rates this month.

With three leading analysts predicting sharp falls in growth this year, many believe there is no need for further tightening of monetary policy.

The committee was meeting on Wednesday before an announcement on future rates on Thursday.

Analysts will be shocked if it includes a further increase from the present level of 7.25%.

But some expect at least one further interest rate rise early this year as the committee seeks to make certain that the economy does not overheat.

Since the General Election on May 1, interest rates have been increased by one quarter of a point in May, June, July, August and in November.

The National Institute of Economic and Social Research, Oxford Economic Forecasting and Cambridge Econometrics suggest the UK could have the slowest growth rate of all 15 EU members in 1998.

Another measure of economic activity released on Monday, the Purchasing Managers' Index, also pointed to sluggish growth - perhaps at less than 2%.

Now Bank of England Governor Eddie George and his independent committee must decide the point at which rates have risen sufficiently to ensure inflationary pressures are under control.

There were some signs on Tuesday of a modest surge in consumer activity late last year.

Official figures from the Office for National Statistics of money and notes and coins in circulation showed an increase even after seasonal elements had been stripped out.

These figures give an indication of the kind of sums consumers have available to pump into the economy.

And they can give early warning of a jump in consumer demand and trigger inflationary fears.

NatWest Markets' UK economist John O'Sullivan said there had been "one last hurrah for the consumer in December".