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Last Updated: Thursday, 7 April, 2005, 11:53 GMT 12:53 UK
UK interest rates frozen at 4.75%
Rates graph
The Bank of England has left UK interest rates on hold at 4.75% for the eighth month running at the end of its latest rate-setting meeting.

The decision by the Bank's Monetary Policy Committee (MPC) was widely expected given subdued UK inflation and a slowdown in consumer spending.

Britons are finally feeling the pinch from five rate rises in one-and-a-half years, analysts said.

However, they are split on whether rates will rise after the election.

"We still think a quarter point rise will come by June," said Graeme Leach, chief economist at the Institute of Directors (IoD).

But some economists are speculating that the next rate move will be down instead of up given that inflation is below the government's target while the retail sector is still struggling.

"The events of the last month and today's decision to leave interest rates on hold at 4.75% support my longstanding forecast that interest rates are currently at their peak and could soon begin to fall," said Roger Bootle, economic adviser at Deloitte & Touche.

Retail plight

In the past few weeks, a wide spectrum of stores including clothes retailer Next, bookseller Ottakar's and ceramic specialist Topps Tiles have warned that consumers are staying away from the High Street.

We strongly urge the MPC to persevere with a cautious stance and keep interest rates on hold for the next few months
David Frost, British Chambers of Commerce

The CBI reported that UK retail sales fell at their fastest pace for six months in March.

And on Thursday, Boots warned that sales growth is likely to be "subdued" over the next 12 months.

"The state of the economy into the spring is not yet clear so a rate rise this month would have been both risky and premature," said the CBI's chief economic adviser Ian McCafferty.

The housing market also appears to be cooling, although recent reports from mortgage lenders have produced conflicting results.

The March survey from the Nationwide building society reported the biggest monthly drop in prices for 10 years, while rival lender Halifax reported that house prices rose 0.5% during the month.

Cautious stance

The British Chambers of Commerce (BCC) said it was not surprised at the Bank's decision.

Rates have already peaked and will start heading down later this year,
Marchel Alexandrovich, Dresdner Kleinwort Wasserstein

"We strongly urge the MPC to persevere with a cautious stance and keep interest rates on hold for the next few months," said BCC director general David Frost.

The EEF manufacturers' organisation also welcomed the Bank's decision.

"With unit wage costs falling in manufacturing and barely rising in the rest of the economy, the labour market is unlikely to generate higher wage inflation," said EEF chief economist Steve Radley.

Waiting game

Economists reckon the Bank of England will wait until the publication of its quarterly inflation report in May before lifting rates again, while many expect rates to be frozen for the rest of the year, or even lowered.

"Our view remains that a continued housing market slowdown and its adverse impact on consumer spending means that rates have already peaked and will start heading down later this year," said analyst Marchel Alexandrovich at Dresdner Kleinwort Wasserstein.

However, the two MPC members - deputy governor Andrew Large and executive director Paul Tucker - who voted for a quarter-point rate rise last month, believed that the consumer slowdown was temporary.

Band of England governor Mervyn King has also pointed out that there could still be mileage in the UK's consumer boom, as data from the turn of the year and from the holiday season is often difficult to interpret.

With the general election being held on 5 May, the outcome of the next MPC meeting, which was originally scheduled on polling day, has been put back to 9 May.

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