Bank rates are unchanged at 4.75%

The Bank of England (BOE) has decided to keep interest rates on hold at 4.75% for September, as widely predicted.

The BOE has raised interest rates five times since last November, most recently in August, to cool the UK property market and consumer spending.

But recent data on house prices and borrowing showed the UK economy seemed to be slowing in response to the rises.

The hold is good news for manufacturers and mortgage holders, but less welcome for those with savings accounts.

"Business is relieved that the Bank has not seen fit to raise rates yet again," said Ian McCafferty, chief economic adviser at the Confederation of British Industry(CBI).

"Recent news suggests that growth has slowed around the world and that UK consumers are being more cautious.

"With the outlook more uncertain, business needs a period of stability and the Bank is right to sit tight until things become clearer."

Rates now appear to be close to their neutral level, and it is essential that unwarranted rises are not imposed on the business sector David Frost, British Chambers of Commerce

Analysts are now divided between those who think the Bank's Monetary Policy Committee (MPC) will leave rates on hold until the end of 2004, and those who think there may be another quarter-point increase.

After Thursday's announcement Barclays said it expected interest rates to rise to 5.0% by the end of the year, while the Institute of Directors thinks they will peak at the same figure in early 2005.

The MPC has to walk a fine line as higher rates could slow economic growth and even trigger a slide in property prices.

Thursday's decision should mark the start of a longer period of stability, "provided that data continues to show the housing market and consumer spending slowing", said manufacturers' organisation EEF.

"The evidence suggests the Bank has succeeded in taking the steam out of the economy without damaging manufacturing," said EEF chief economist Steve Radley.

"While it may be too early to put the medicine back in the cabinet, it now looks sensible to reduce the frequency of the dosage."

'Good sense'

David Frost, director general of the British Chambers of Commerce, said: "The Bank has made the best decision for business today.

"There is growing evidence that the housing market is cooling down, suggesting that earlier rises in interest rates appear to be running their course.

The five rate rises since November last year seem to have had the desired effect Adrian Coles, director general, the Building Societies Association Why have rates been held?

"The fact the financial markets now expect rates to peak at a lower level than before demonstrates the MPC's good sense in waiting to judge the effects of earlier rises."

He said UK economic growth had been strong in the year to date, but poor retail sales in July and two successive monthly falls in manufacturing output meant the Bank must continue to take "a cautious approach".

"Rates now appear to be close to their neutral level, and it is essential that unwarranted rises are not imposed on the business sector."

'Decline in borrowing'

The Bank's last quarterly forecast in August suggested one more quarter-point rise could be enough to ensure inflation remains within its 2.0% target.

And recent data from the Halifax indicated house prices fell 0.6% last month, while manufacturing output contracted for the second month running in July.

The most recent figures from the Nationwide showed house prices practically unchanged in August.

A recent decline in borrowing has provided further evidence of the impact of the recent rate rises.

UK consumers took out fewer loans, credit cards, and mortgages in July than they did in June, according to the BOE.

"The five interest rate increases since November finally seem to be changing consumer attitudes towards borrowing and are having the expected knock-on effect on the housing market - as both have slowed," said Jak Sardar, economist for Barclays.