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Last Updated: Thursday, 9 March 2006, 12:00 GMT
UK interest rates unchanged again
UK base rates have been left on hold again at 4.5%, following this month's meeting of the Bank of England's Monetary Policy Committee (MPC).

A steady inflation rate and signs of a gradual recovery in the housing market are believed to be behind the MPC's decision to keep rates frozen.

It was the seventh month in a row that the committee voted to leave interest rates unchanged.

The last time rates were cut was in August 2005, when they fell 0.25%.

Since last month, the Halifax house price index has jumped 1.4%, while the service sector has expanded at its strongest pace in nearly two years.

We now expect rates to remain on hold at 4.5% for the remainder of the year
Philip Shaw, analyst

Manufacturing output, meanwhile, grew 0.2% in January, its third consecutive monthly gain.

"We see little justification for interest rates to move in either direction," said Steve Radley, chief economist at manufacturers' group EEF.

"The chancellor's decisions in the Budget are now of more immediate concern to manufacturers facing a raft of escalating costs."

Retailers buck trend

However, the lack of an interest rate cut will disappoint the struggling retail sector.

Bank of England Monetary Policy Committee
The MPC may keep rates frozen for the rest of the year

Recent figures from the British Retail Consortium showed a subdued trend on the High Street, with like-for-like sales up just 0.6% in February following weak January sales.

With the retail sector in mind, many economists had originally expected rates to fall again in May, but have now been forced to revise their opinions.

"We would readily acknowledge that, at this stage, neither the dataflow or the commentary from MPC members themselves is friendly to the notion that rates are set to fall in May," said Malcolm Barr, economist at JP Morgan Chase.

Going nowhere?

Indeed, some economists now believe rates will stay frozen for the rest of 2006.

We are disappointed that the MPC felt unable to take action to counter the underlying weaknesses of the economy
David Frost, BCC

"Last month's inflation report ... [was] about as strong an endorsement of steady rates as one is likely to see," said Investec analyst Philip Shaw.

"The balance of news has turned around significantly over the past month and we now expect rates to remain on hold at 4.5% for the remainder of the year."

This has been the longest period of interest rate stability since the MPC was formed in 1997.

Though the MPC's stance was widely expected by the financial markets, the British Chambers of Commerce (BCC) was still disappointed by the decision.

"Today's MPC decision to leave interest rates unchanged at 4.5% was widely expected by the financial markets," said BCC director general David Frost.

"While we are not surprised, we are disappointed that the MPC felt unable to take action to counter the underlying weaknesses of the economy."


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