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EDITIONS
Thursday, 4 July, 2002, 12:08 GMT 13:08 UK
UK interest rates left unchanged
The Bank of England has kept interest rates unchanged at 4% for the eighth successive month.

The decision had been expected by most financial experts and was welcomed by industry officials, despite calls from some observers for higher rates to cool the housing market.

"This is the right decision, it is clear that there is little generalised inflationary pressure in the economy," Ian McCafferty, the Confederation of British Industry's chief economic adviser, said.

Stephen Radley, chief economist at the Engineering Employers Federation, said: "We applaud the [Bank] for taking in the wider picture and not being swayed by the current panic over the housing market."

The cut leaves interest rates at their lowest level for about 40 years, but analysts still expect the Bank to start raising rates later in the year.

"There is a suspicion that they may put up rates in August once they've seen the first reading of economic output growth which may conceivably be quite strong," said Jeremy Batstone of NatWest Stockbrokers.

Deutsche Bank economist George Buckley said a raise could be delayed until September.

Housing strength

Most of the pressure for a rise in rates has come from observers worried by the strength of the housing market, which some economists fear is now poised for a sharp downturn.

Further evidence of the property sector's strength came on Thursday, when the latest house price survey from the Halifax bank showed prices rising at an annual rate of nearly 20%.

The survey mirrored the results of a Nationwide building society study released on Monday.

Even the Council of Mortgage Lenders has urged the Bank to raise rates to ease the rate of price growth, and hopefully avoid a property crash.

Ruth Lea, of the Institute of Directors, said: "The overheating housing market remains a concern and is still likely to force a modest increase in interest rates by year end."

Low inflation

But away from the housing market there has been little evidence recently of inflationary pressures.

The target for underlying inflation is 2.5% - with the Bank allowed to over or undershoot it by one percentage point - but at the moment inflation is running at 1.8%.

And the tentative recovery in the manufacturing sector is already showing signs of faltering.

On Monday, the latest study from the Chartered Institute of Purchasing & Supply (CIPS) showed activity barely increased in June.

Even the High Street boom is showing signs of easing.

On Wednesday, a survey by the Confederation of British Industry (CBI) showed retail sales in June grew at their slowest level for 18 months.

A rate rise was also thought unlikely as it could have hit confidence in the already jittery stock market.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Jenny Scott
"Shares are still hovering around levels last seen in 1997"
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"The economy is doing very well"
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Economic indicators

Analysis

UK rate decisions
See also:

06 Jun 02 | Business
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