Bank keeps rate unchanged at 4.5%

The Bank of England has decided to leave interest rates at 4.5% for July.

Rates were left unchanged despite warnings from Bank of England governor Mervyn King that rates may have to keep rising to cool house prices.

In June rates went up for a second consecutive month, the third rise in base rates this year.

The decision will be welcomed by manufacturers and mortgage holders, although it is less-welcome news for those with savings accounts.

VOTE RESULTS Are higher interest rates affecting your spending? I'm a little more cautious 21% I'm more careful about buying on credit 13% I'm holding back on buying high-value goods 8% I have put off buying a house 20% Not at all - I'm not worrying yet 38% 12854 Votes Cast Results are indicative and may not reflect public opinion Vote now closed

The Bank's Monetary Policy Committee (MPC) is expected to start raising rates again from August.

There have been recent tentative signs that soaring house prices and runaway consumer borrowing may have started cooling, while inflation is still some way below target.

Last month Mr King warned that UK property prices were "well above what most people would regard as sustainable in the longer term".

Last week the Nationwide and Halifax said that house price growth had eased in June.

At the time Martin Ellis, Halifax chief economist said it indicated that the recent increases in interest rate levels may have started to "curb" housing demand.

'Pause for breath'

Following Thursday's decision, one manufacturers' organisation said the decision was the right one, giving the Bank of England time to assess the impact of recent rises in the cost of borrowing.

We are concerned that the increasing focus on house prices in the Bank's deliberations will be to the detriment of Britain's all-important productive sector David Frost British Chamber of Commerce Expert view: When will rates move again?

"With tentative signs from the housing market and from business surveys that activity is cooling a little, the Bank was right to pause for breath today," said Engineering Employers' Federation chief economist Steve Radley.

"We urge the Bank to continue its cautious approach,"

The British Chambers of Commerce (BCC) also welcomed the decision.

"We are pleased the Bank has decided to hold this month. After consecutive monthly rises in May and June it would have been premature to put rates up again so soon," said David Frost, director general of the BCC.

Modest upturn

Mr Frost said the Bank was right to pause before the publication of its Inflation Report next month.

And he pointed out that while manufacturing output figures showed a welcome recent improvement, and year-on-year growth is now at 1.4%, "output is still well below its peak of nearly four years ago".

"We are concerned that the increasing focus on house prices in the Bank's deliberations will be to the detriment of Britain's all-important productive sector," he added.

"A big question mark hangs over the strength of the manufacturing recovery... the modest upturn in manufacturing is vulnerable and it cannot become the justification for rapid rate rises."

The BCC said it accepted there may have to be moderate rate rises later in the year.

No hurry

The CBI also said the MPC was "right to leave interest rates unchanged".

"Business needs a breathing space to allow the impact of the last increases to take effect," said chief economic adviser Ian McCafferty.

"There are now early signs that the recent very rapid pace of increase in house prices and consumer spending is beginning to moderate.

"So far there are few signs of inflation pressures that could seriously threaten the Bank of England's target."

He said rates are likely to have to edge up further later in the year, but for now the Bank had no need to hurry.