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Thursday, 1 August, 2002, 11:32 GMT 12:32 UK
UK interest rates left on hold
Interest rate graph
UK interest rates have been left on hold for the ninth month running, amid fears over slowing High Street sales and falling share values.

The Bank of England has left rates at 4%, their lowest level for 38 years.


There are signs that economic recovery is faltering both domestically and in our main markets

Ruth Lea, Institute of Directors
The decision followed a string of data showing a slowdown in retail sales growth, which has been credited with saving Britain from a severe economic slowdown.

Economists have also become increasingly worried over the effects of the fall in stock prices, with the benchmark FTSE 100 share index falling by 16.5% over June and July.

Fears have risen that the share falls, which have eroded the value of savings, has dented consumer confidence, and worsened prospects for retailers.

'Prudent footing'

The rate decision was welcomed business groups including British Chambers of Commerce, which applauded the bank's "cautious stance".

"Consumer confidence is suffering on both sides of the Atlantic and sales on the High Street are falling," BCC acting director general David Frost said.

"We hope the Bank will continue on this prudent footing while doubts hang over the state of the economy."

Stephen Radley, chief economist at the Engineering Employers' Federation, said Thursday's decision was the "only sensible course of action", and urged the Bank to stand prepared to cut rates to support the economy.

'Recovery faltering'

The Bank was, in the spring, seen as preparing to raise rates above 5% by the end of the year, to prevent overheating in an economy which seemed to be recovering well from last year's global slowdown.

But prospects of a rise have dimmed as economic data has come in weaker than expected.

"There are signs that economic recovery is faltering both domestically and in our main markets," said Ruth Lea, head of the policy unit at the Institute of Directors, welcoming the rates decision.

Inflation has fallen to 1.5%, at the bottom of the Bank's target range.

George Buckley, UK economist at Deutsche Bank, said he would "not be surprised" if one member of the Bank's rate setting Monetary Policy Committee had voted for a cut on Thursday.

House prices

Yet figures on Thursday showed continued strength in the housing market, which has proved one area supporting the case for higher interest rates.

A report from Nationwide, Britain's biggest building society, showed house prices rising at their fastest rate for 13 years.

Bank of England chiefs have repeatedly warned this year over the creation of a housing market bubble, whose collapse could wreak severe damage on the economy.

 WATCH/LISTEN
 ON THIS STORY
Jenny Scott reports
"There's a real battle of nerves going on"
Will the UK economy feel the impact of the US slowdown?

Economic indicators

Analysis

UK rate decisions
See also:

01 Aug 02 | Business
01 Aug 02 | Business
31 Jul 02 | Business
31 Jul 02 | Business
25 Jul 02 | Business
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