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Thursday, 10 January, 2002, 12:00 GMT
UK interest rates left unchanged
Bank of England chiefs have left interest rates on hold at 4%, despite increasing evidence of the strength of the UK economy.

The Bank's Monetary Policy Committee decided not to raise rates, despite a scenario of rebounding house prices and surging High Street sales which some feared could push inflation higher.

The Monetary Policy Committee has today signed the death warrant for thousands of manufacturing jobs

Roger Lyons, Union chief
Last week, the governor of the Bank of England, Sir Edward George, warned that interest rates may have to rise this year to stem a credit card-fuelled spending boom in the UK.

Analysts said that with fewer signs of recovery in the global economy, a rate hike would have been too risky, and they believed this was why the bank did not raise rates.

The Bank also ignored pleas for a rate cut from the UK manufacturing sector, which is mired in recession.

Off the radar

"By not cutting the interest rate the MPC has today signed the death warrant for thousands of manufacturing jobs up and down the country," said the general secretary of the Amicus union, Roger Lyons.

Rates have troughed ... we don't see any scope for rises until much later in the year, probably September

John Butler
HSBC economist
"With unemployment rising, inflation in check and significant parts of the economy slowing, raising rates should be well off the radar," said Stephen Radley, chief economist of the Engineering Employers' Federation.

"If anything, there should be room for further cuts if we do not see clear signs of recovery."

But other economists were expecting rates to be moving in the other direction.

John Butler, economist at HSBC, said he was "not surprised" with the decision "given the mixed economic data coming out of the global economy and the extremely strong UK consumer".

We do not, on the whole, expect further cuts in interest rates

Ruth Lea
Institute of Directors
"In our view rates have troughed but we don't see any scope for rises until much later in the year, probably September."

And the head of the Institute of Directors policy unit, Ruth Lea said the bias now seemed to be towards rate hikes.

"Even though there are still worries about the domestic economy and the global situation still looks grim... we do not, on the whole, expect further cuts in interest rates unless there is a rapid deterioration in economic activity."

Avoiding recession

The Bank cut interest rates seven times last year in a drive to ensure the UK avoided the kind of slump seen in Germany, Japan and the US.

The last reduction, in November, took rates to 4%, their lowest level since January 1963.

UK Interest rates
Jan 2002 4%
Feb 2001 6%
Seven cuts last year
Now at 37-year low
At the time, analysts had predicted that further cuts would be needed to fend off the risks of a slump in consumer confidence following the 11 September attacks, and to bolster a manufacturing sector suffering a lengthy contraction.

But the low rates have fostered a spending boom which saw last month's overall High Street sales grow at double the rate of December 2000, according to a report by the British Retail Consortium (BRC).

Rising demand is seen as heightening the threat of higher prices, and nurturing inflationary concerns which the Bank would typically address by raising interest rates.

The BBC's Evan Davis
"Given the conflicting signals no wonder the Bank of England did nothing"
The BBC's John Moylan
"Consumers have made this the best Christmas in five years for retailers"
See also:

08 Jan 02 | Business
Which way for UK interest rates?
07 Jan 02 | Working Lunch
Interest rates to rise in 2002?
04 Jan 02 | Business
UK consumers 'over-spending'
08 Nov 01 | Business
Sharp cut in UK interest rates
08 Nov 01 | Business
UK interest rates could fall again
18 Sep 01 | Business
UK rates cut to 1960s levels
10 Jan 02 | Business
Rate chiefs 'to ignore' sales surge
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