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Last Updated: Thursday, 4 May 2006, 13:13 GMT 14:13 UK
Bank of England keeps 4.5% rate
Bank of England
Stephen Nickell voted in his last MPC meeting
The Bank of England has decided to keep UK interest rates at 4.5% for the ninth month in a row at its latest meeting.

The decision by the Bank's Monetary Policy Committee (MPC) had been widely expected by analysts.

But with the UK housing market looking strong, and manufacturing showing signs of recovery, some think an increase in rates could be on the horizon.

The Bank of England will be closely watching oil prices, as the rising trend threatens to increase inflation.

Signs of recovery

However, industry has warned that a premature rise in rates could cut off the recovery.

"With growth showing no signs of moving above trend and inflation subdued, it is far too early to start talking of increases in rates," said Steve Radley, chief economist of employers' group EEF.

"The Bank must continue to keep its finger off the trigger until there is a stronger case for a move in either direction," he added.

Interest rate graph

Signs of recovery in the manufacturing sector have prompted some analysts to predict a raise in the coming months.

Meanwhile figures released earlier on Thursday by the Chartered Institute of Purchasing and Supply showed Britain's services sector growing in April at its quickest rate in more than two years.

"Several more readings in this territory will embolden the hawks on the MPC," said Andrew McLaughlin, chief economist at the Royal Bank of Scotland, which is a joint publisher of the findings.

Also on Thursday the Halifax bank reported an increase of 2% in house prices in April, the sharpest climb for two years.

Roger Bootle, economic adviser to Deloitte, said the rate decision would "prompt most people to think that the next move in interest rates will be upwards".

However, he added that chances of a cut "have not completely evaporated".

David Frost, Director General of the British Chamber of Commerce warned that despite signs of recovery in the economy, the upturn was "very fragile".

Inflation fears

Despite the decision to keep rates on hold, the recent increases in energy bills, due to the higher costs of oil, are threatening to push up inflation.

Bank of England governor Mervyn King recently told MPs that energy rises could damage consumers' spending and reduce households' buying power, threatening the economy.

A recent report by accountants BDO Stoy Hayward said rising energy prices would push inflation up to 2.3% between April and June as utilities companies increased their prices.

The Bank's target is to keep inflation at 2%.

Committee reshuffle

At the last Monetary Policy Committee meeting, the vote was 7-1 in favour of keeping rates at 4.5%, with the exception of Stephen Nickell, who voted for a rate cut.

April's rate meeting only had eight members of the MPC voting instead of the usual nine.

Former member Richard Lambert has now stepped down to replace Sir Digby Jones as director general at the Confederation of British Industry.

The interest rate vote is the last meeting that Mr Nickell will participate in, as he is also leaving the MPC.

Andrew McLaughlin, group chief economist at Royal Bank of Scotland, said that the odds of a rate increase would be higher following Mr Nickell's departure.


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