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Thursday, 9 May, 2002, 11:09 GMT 12:09 UK
UK interest rates kept on hold
Graph to show UK interest rates
The Bank of England has announced that it is keeping UK interest rates on hold at 4%.

It is the sixth month in a row that rates have been held at this level - their lowest level for 38 years.

The Monetary Policy Committee (MPC) made its decision after figures showed that manufacturing was still struggling to recover from a downturn.

We applaud the Bank for giving the recovery chance to take root before acting

Stephen Radley, EEF

The Engineering Employers' Federation (EEF) welcomed the bank's decision.

EEF chief economist, Stephen Radley, said: "While order books are filling up, manufacturers are still looking to repair badly damaged balance sheets.

Pace of recovery

"We applaud the Bank for giving the recovery chance to take root before acting," he added.

The EEF said that the absence of inflation anywhere but in the housing market would give the Bank of England time to assess the pace of recovery.

The only movement now should be downward

John Monks, TUC

Ian Fletcher, chief economist at the British Chambers of Commerce, agreed: "Although the case for raising rates in mounting, we believe the Bank is correct to postpone that decision.

"The MPC should not be trying to second guess whether manufacturing recovery is on a firm footing," he added.

Most analysts believe rates will rise towards the end of the year.

No sign of an upturn

David Hillier at Barclays Capital told the BBC he expected to see a 0.25% increase in July and he thought that interest rates would reach 4.75% by the end of the year.

But John Monks, the TUC general secretary, said the next rate move should be down.

"Having consistently undershot their inflation target and with manufacturing still struggling to turn the corner, the only movement now should be downward," he said.

On Wednesday, figures showed that manufacturing output in the UK fell during March, surprising many experts who had expected to see signs of an upturn.

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

Spending boom

The government's target is 2.5% a year, which the Bank of England is allowed to over or undershoot by a maximum of one percentage point.
Women shopping
High Street spending is still strong

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 was likely to slow, partly as a result of tax increases announced in Chancellor Gordon Brown's budget.

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

See also:

08 May 02 | Business
House prices in renewed surge
08 May 02 | Business
Output blow to UK manufacturing
16 Apr 02 | Business
UK inflation edges higher
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