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Last Updated: Thursday, 5 April 2007, 08:40 GMT 09:40 UK
Rate decision seen as close call
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Analysts expect a further rate rise this year
The latest interest rate decision by the Bank of England is being seen as a tough call, but most analysts expect rates to stay at 5.25%.

However, even if the Bank does not put rates up this month, many predict rates will still rise to 5.5% in May.

Recent economic data has shown UK inflation edging up and retail sales still growing strongly.

The UK has raised rates by a quarter point three times since last summer - in August, November and January.

'Uncertainty'

"Although the risk of an early move this Thursday is serious, the Bank of England is a bit more likely to wait until May," said Holger Schmieding, an economist at Bank of America.

This view was echoed by Philip Shaw, chief economist at Investec Securities: "We are still forecasting a 25 basis point increase to 5.5% in May".

"Our central view remains that rates will come down gently in 2008," he added.

In March, members of the Bank's Monetary Policy Committee (MPC) voted 8 to1 to keep rates on hold, minutes from the meeting showed, with David Blanchflower voting in favour of a rate cut.

However, the last vote came against a backdrop of wildly fluctuating stockmarkets worldwide, which raised concerns over the possibility of wider economic contraction.

While the markets now appear far less volatile, Mervyn King, the Bank of England's governor, has suggested such instability could occur again, as worries over the US economy remain.

The drop in CPI inflation in January - to 2.7% from 3% - was seen as a key factor in keeping rates unchanged in March.

However, the following month saw inflation edge up to 2.8%, a figure well above the government's 2% target.

Mr Shaw said: "The rule of thumb when uncertainty reigns tends to be that the MPC places greater reliance on its inflation report analysis. This implies no change this time but a hike next month."

As well as strong retail figures in March, other data for the month showed annual house price inflation across the UK hit nearly 10%, according to the Nationwide Building Society.




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