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Last Updated: Thursday, 5 April 2007, 11:23 GMT 12:23 UK
UK rates left unchanged at 5.25%
UK rates graph
The Bank of England has voted to leave rates on hold at 5.25% for a second month in a row.

While the decision is likely to please borrowers, experts widely predict that rates will rise to 5.5% in May.

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

The EEF employers' organisation welcomed the decision to leave rates on hold but added that inflation pressures would to trigger another rise soon.

Rise in store?

"Today's decision to hold rates will be welcomed by manufacturers as it gives the Bank more time to assess whether pay pressures are building up," said chief economist Steve Radley.

"However, business also recognises that another rise may be needed to keep inflation in check."

Ray Boulger of mortgage adviser John Charcol added that the latest decision from the Bank's Monetary Policy Committee (MPC) probably resulted from another split vote.

But while the market is widely predicting a rise to 5.5% next month, Mr Boulger said such a move was not a forgone conclusion, particularly after last month's meeting.

In March, MPC members voted by 8 to1 to keep rates on hold, with David Blanchflower voting in favour of a rate cut.

Uncertainty

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.

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.

Meanwhile, further figures from the Halifax suggested property price inflation was 11.1% in March.

While many experts predict that rates will reach 5.5% later this year, they do not expect them to rise any further.

"We believe that 5.5% should mark the peak in interest rates as growth loses a little momentum over the coming months and inflation heads markedly lower helped by favourable base effects and the trimming of utility prices," said Howard Archer of Global Economics.


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