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Last Updated: Thursday, 8 September 2005, 12:04 GMT 13:04 UK
Bank keeps rates on hold at 4.5%
The Bank of England's rate-setting committee has voted to keep UK interest rates on hold at 4.5%.

The decision by the nine-member Monetary Policy Committee (MPC) was widely anticipated by analysts.

The MPC cut the cost of borrowing last month by a quarter point, amid growing concerns about slowing UK economic growth and consumer spending.

However, the fallout from Hurricane Katrina has increased worries about inflationary pressures in the economy.

'Clear signal'

British Chambers of Commerce director general David Frost broadly welcomed the decision to keep interest rates on hold.

The committee has made it clear it is currently in no hurry to cut rates further
Howard Archer, Global Insight

"Following the much-needed interest rate cut in August, it is natural that the committee should wish to assess the situation before taking further action," he said.

But Mr Frost said the Bank should "signal clearly" that it would be prepared to cut interest rates again if necessary.

Howard Archer, chief economist at analysts Global Insight, said the Bank's decision had been "predictable".

"The committee has made it clear it is currently in no hurry to cut rates further," he said.

However, Mr Archer said a further quarter point cut in interest rates remained a possibility before the end of the year. "We are more pessimistic than the Bank of England about growth prospects," he said.

'Mixed bag'

Last month's decision to cut rates was a finely balanced one, with Bank governor Mervyn King one of four MPC members who opposed the reduction.

Mr King cautioned that cutting interest rates too quickly could push inflation higher, above the Bank's target rate of 2%.

Since that forecast, the effect of Hurricane Katrina has been to increase uncertainty, with the possibility of more oil-related inflation in the pipeline.

"Economic news since the 4 August easing has been a mixed bag and consistent with rates remaining on hold," said Investec analyst Philip Shaw.

The UK's economy grew at a faster-than-expected rate during the second quarter on the back of a better-than-expected performance from the manufacturing sector.

However, businesses have been struggling with the strain of high oil and petrol prices, which have been exacerbated by the Hurricane Katrina disaster in the US.

Inflation also reached 2.3% in July, rising above the government's target of 2.0%.

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