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Thursday, 9 November, 2000, 12:43 GMT
Bank holds interest rates
Bank of England keeps interest rates on hold at 6%
The Bank of England has held its key interest rate at 6% for the ninth month in succession.


In the longer-term there are good reasons to think that rates might have peaked

British Chambers of Commerce
The Bank's Monetary Policy Committee (MPC) decided there was no need to adjust interest rate policy in the wake of the chancellor's pre-Budget report.

Economists said Chancellor Gordon Brown's 4.8bn package of carefully targeted tax cuts and spending increases was unlikely to alter the Bank's inflation outlook.

In a speech to the CBI annual conference in Birmingham on Tuesday, Bank governor Sir Eddie George had said that "over generous" tax cuts would put pressure on prices, adding to the need for higher interest rates.

But with underlying inflation still comfortably below the government's target, and pay pressures subdued, few analysts expected the MPC to act this month.

If the Bank had raised rates, it would have been seen as a damning indictment of the chancellor's pre-Budget report.

Pressures

Sir Eddie has declined to give any indication that rates have peaked, and some economists say that they could still go up by another half-point, to 6.5%, over the coming months.

But business leaders and the City applauded the decision to keep rates on hold this month.

Dr Ian Peters, deputy director general of the British Chambers of Commerce said: "The MPC is right to hold rates against the present backdrop of weather and travel chaos, which will have an impact on output.

"In the longer-term there are good reasons to think that rates might have peaked, with tentative signs of cooling growth and inflation remaining subdued by the effects of a weak euro on competition in domestic and export markets."

'Wait and see'

Kate Barker, chief economist at the Confederation of British Industry, said: "Yesterday's pre-Budget report was slightly more generous than expected, but it does not change our view that inflation will stay on target.

"Firms will be pleased that the cost of borrowing remains stable, as many sectors struggle to achieve adequate margins."

Philip Shaw, chief economist at investment bank Investec, said: "Today's decision is not a surprise to the markets.

"Generous increases in public spending may put pressure on demand over the next year or so, but the MPC still has the luxury of being able to take a wait-and-see approach to interest rates."

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See also:

09 Nov 00 | UK Politics
Brown fails to pacify protesters
07 Nov 00 | Business
Bank chief warns against tax cuts
18 Oct 00 | Business
Bank of England shifts rate stance
05 Oct 00 | Business
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