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Last Updated: Thursday, 7 December 2006, 12:00 GMT
Interest rates kept on hold at 5%
UK interest rate graph
UK interest rates have been kept on hold at 5% following the latest meeting of the Bank of England.

The move was widely anticipated, and comes as the Bank considers the impact on inflation of two rate rises in the past four months.

The Bank's Monetary Policy Committee raised the cost of borrowing to 5% in November, its highest in five years.

Minutes of last month's meeting revealed that two of the nine-member committee were opposed to the rise.

'Knock-on effects'

The last two increases have bought the Bank some time which it should use to assess the direction of the economy in the New Year
Steve Radley, EEF chief economist

The Bank of England's most recent Inflation Report suggested that there was little need to raise UK base rates soon.

The recent strengthening of the pound against the dollar, to 14-year highs close to $2, was seen as another reason for the Bank to hold rates at their current level.

Manufacturers' organisation the EEF described the Bank's decision as predictable, and said UK rates should be held at 5% into the New Year.

"The last two increases have bought the Bank some time which it should use to assess the direction of the economy in the New Year," said EEF chief economist Steve Radley.

"In particular, we have yet to see the knock-on effects of a slowdown in the United States."

'Inflationary threat'

However, some economists believe that rates could rise by a further one-quarter percentage point to 5.25% early next year.

While Britain's housing market and services sector remains robust, consumer spending and manufacturing activity appear to be slowing down.

"A majority of the Monetary Policy Committee is likely to be concerned enough about the inflationary threat from the rapid rates of money supply growth and the impending January pay round to vote to raise interest rates to 5.25% in February," said Roger Bootle, economic adviser to consultants Deloitte.

UK consumer price inflation was steady at 2.4% - above the target rate of 2% - according to official figures published last month.


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