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Last Updated: Thursday, 8 March 2007, 12:34 GMT
UK rates kept unchanged at 5.25%
10 note
Good news for borrowers, but it may only be a temporary reprieve
UK interest rates have been kept unchanged at 5.25% by the Bank of England's Monetary Policy Committee.

While it is good news for borrowers this month, many in the City still expect there to be another rate rise in the next few months.

UK inflation fell to 2.7% last month, down from an 11-year high of 3%, but it is still well above the target of 2%.

There have been three rate rises of a quarter point each since last summer: in August, November and January.

Interest rates in the past year

Wait and see

Few people had been expecting an increase this month, after the minutes from February's meeting suggested that the Monetary Policy Committee's members were keen to wait and see what effect the increases so far had had.

"The gist of the minutes to February's meeting was that the MPC really had time to sit and wait, to assess evidence to see whether upward risks to inflation were crystallising," said Investec economist Philip Shaw.

The latest inflation figures are to be released later than usual this month, on 20 March, so the rate-setters are unlikely to have been given a preview of them.

The committee is also likely to have wanted to know what is in Chancellor Gordon Brown's budget on 21 March before raising rates again.

Falling shares

The Bank of England recently indicated that interest rates would need to rise one more time, to keep inflation near its long-term target of 2%.

"I think there is some uncertainty about when the next rate rise will be, but April or May will become the favoured choices," said Alan Clarke, UK economist at BNP Paribas.

The minutes from this meeting will be published on the morning of Budget day.

There will be much interest in whether the voting has changed from February's 7-2 result in favour of keeping rates unchanged.

Decision welcomed

Some people also felt that the recent falls on global stock markets meant that a rate rise was less likely.

David Kern, economic adviser to the British Chambers of Commerce, said: "Given the worsening global risks, highlighted by the acute turmoil on the international financial markets, an early hike in rates could have very harmful effects on business confidence and on the economy's growth prospects."

EEF, the manufacturers' organisation, also welcomed the decision not to raise rates.

"EEF believes that two of the Bank's stated fears, an escalation of earnings growth and firms pushing through significant price increases, have yet to materialise in any substantive fashion," it said.

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