UK interest rates remain at 4.75%

UK interest rates have been kept on hold at 4.75% following the latest meeting of the Bank of England's rate-setting committee.

The move was widely expected after recent figures showed a fall in factory output and a cooling housing market.

The Bank has raised rates five times since November 2003, most recently in August, in a bid to rein in the UK property market and consumer spending.

Some economists now believe interest rates may not rise again this year.

'Wise' decision

The EEF manufacturers' organisation welcomed the decision of the Bank's Monetary Policy Committee (MPC).

"With inflation in check and the business outlook becoming more uncertain, the MPC is wise to keep rates on hold," said Steve Radley, EEF chief economist.

"If recent trends continue, we may be closer to the peak on rates than previously thought."

We think that... the MPC will not feel the need to hike rates further this year Philip Shaw, Investec

The British Chambers of Commerce (BCC) said it would have been "reckless" to raise rates after Wednesday's disappointing manufacturing output figures.

"Additionally, there are a number of threats to growth, such as the relentless rise of oil prices in the face of risks to supply and bullish world demand," said BCC director general David Frost.

Ian McCafferty, chief economist at the Confederation of British Industry, said the Bank "should wait until things are much clearer before deciding if any further medicine is required".

Have rates peaked?

Analysts had expected the MPC to leave rates unchanged this month but, until recently, had expected a further quarter point increase in November to ensure inflation remains within its 2% target.

However, in light of recent data many have started to question whether it will raise rates again so soon.

Official figures released on Wednesday showed a 0.8% decline in manufacturing output between July and August.

Homeowners have been hit by five rate rises since November

There has also been a slowdown in service sector growth and consumer borrowing.

And while the latest house price survey from the Halifax showed prices rebounding in September from a fall in August, most recent studies have indicated that the rate rises of the past year have cooled housing demand.

"We think that faced with a slowdown on several fronts the MPC will not feel the need to hike rates further this year," said Philip Shaw, chief economist at Investec.

However, Ross Walker, UK economist with Royal Bank of Scotland, said it was too soon to say the Bank of England has finished raising rates in the current cycle.

"We are very close to a peak but there may be one further quarter point rise to come, probably in the early part of next year," he said.

Roger Bootle, economic adviser at Deloitte, said he believed rates could go higher than the current level, but predicts rates will then fall to 4.5% by the end of 2005 and to about 4.0% by the end of 2006.