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.

The Bank's rate-setting committee has put up rates five times in the past year, but rates have been on hold since September amid signs of a slowdown.

Economic growth has slowed with manufacturing output falling, and there are few signs of rising inflation.

There was also further evidence on Thursday from the Halifax bank that the UK housing market is cooling.

The latest Halifax survey found prices fell by 1.1% during October, with the bank saying five interest hikes in a year had "taken impetus away" from demand.

Breathing space

Last month, Bank of England governor Mervyn King said that the economy had hit a "softer patch" after rapid economic growth in the first half of 2004.

Provisional figures released by the Office for National Statistics showed the economy grew by just 0.4% during the third quarter.

It's clear the economy has slowed since the summer as the earlier rate rises have begun to take effect Ian McCafferty, CBI

It was the weakest pace of growth since the first quarter of last year, and was attributed to a 1.1% decline in industrial production.

The EEF manufacturing group welcomed the Bank's decision to freeze rates again.

"Manufacturers will welcome today's decision at a time when a range of rising costs is making life more difficult," said EEF chief economist Steve Radley.

"Evidence of slowing housing and consumer markets may not be conclusive, but it gives the Bank breathing space to leave rates on hold until the situation becomes clearer."

Right decision

The decision to freeze rates by the Bank's Monetary Policy Committee (MPC) was backed across the board by other economists and business leaders.

"The Bank was right to do nothing this month. It's clear the economy has slowed since the summer as the earlier rate rises have begun to take effect and global conditions have become more difficult," said the CBI's chief economic adviser Ian McCafferty.

Rates are likely to fall next year as the housing market downturn continues and inflation remains low Jonathan Loynes, Capital Economics

"Quite how well the economy performs into next year is highly uncertain, so the MPC should keep rates on hold until the outlook becomes clearer."

The British Retail Consortium (BRC) agreed, citing a slowing economy and shop prices at their lowest since 2003 as reasons enough to keep rates on hold.

"There was no justification for another other action by the MPC than to hold or to cut rates," said the BRC's director general Kevin Hawkins.

And the British Chambers of Commerce pointed out that UK businesses were still facing serious pressures.

"The BCC's recent quarterly economic survey highlighted a worrying fall in business confidence and overall results were disappointing for both services and manufacturing," said David Frost, BCC director general.

Economists now expect next week's Inflation Report from the Bank to show inflation on track to hits its targets, boosting the chances that rates have peaked.

"The bigger point, in our view, is still that rates are likely to fall next year as the housing market downturn continues and inflation remains low," said Jonathan Loynes of Capital Economics.

"The markets have already started to price in lower rates."