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Last Updated: Thursday, 3 August 2006, 10:24 GMT 11:24 UK
Rates decision 'finely balanced'
Bank of England interest rate graph
The Bank of England is expected to leave rates unchanged for the 12th month in a row but arguments over the move are seen as finely balanced.

Despite increased talk that it will soon opt for a rise, analysts feel the Bank will leave rates on hold at 4.5%.

An uncertain global economic outlook and the risk to growth from rising fuel prices may deter an immediate rise.

However, some experts think rates will rise before the end of the year to help keep inflation in check.

'Lively debate'

Recent figures showed inflation unexpectedly surged to 2.5% in June - above the 2% target - while rising energy costs are expected to push inflation even higher.

Meanwhile, the economy grew at its fastest rate for two years in the second quarter of this year.

"At last it's got interesting. A combination of above-trend growth and above-target inflation has finally given the interest rate hawks some serious ammunition," said Andrew Smith, chief economist at KPMG.

"But a rise this month is still far from a done deal."

Hawks vs. doves

Crucial to the future path of UK rates will be how the members of the Monetary Policy Committee (MPC) - the body which sets interest rates - vote at the current meeting.

"Developments since the July MPC meeting are likely to have pushed the committee significantly nearer towards hiking interest rates," Howard Archer, chief UK economist at Global Insight said.

"Consequently, the MPC meeting is set to be a very lively affair, and it is highly possible that some MPC members will cross over into the rate hike camp."

While recent data had made the case for a rate rise stronger, he added that the MPC would be very aware that recent growth was lifted by a World Cup-driven consumer spending boom.

This meant it was more likely to wait for another round of figures to assess the strength of the economy.

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