Bank opts to leave rates on hold

The Bank of England has left interest rates on hold at 4.75% for a sixth month in a row.

The Bank's Monetary Policy Committee (MPC) decided to take no action amid mixed signals from the economy. But some economists predict a further rise in the cost of borrowing will come later this year. Interest rates rose five times between November 2003 and August 2004 as soaring house prices and buoyant consumer data sparked inflation fears. Bank of England governor Mervyn King has recently warned against placing too much weight on one month's economic data, suggesting the MPC is waiting for a clearer picture to emerge. Economists see next week's inflation report from the MPC as key in assessing whether a further interest rate rise is necessary to keep the economy in check.

Slower consumer spending and a quieter housing market are likely to have convinced the MPC that rates should be left unchanged in recent months. Inflation, however, has been rising faster than expected, hitting an annual rate of 1.6% in December - its highest level in six months. Data on Wednesday also showed manufacturing output rose at its fastest rate since May last month, reinforcing a view that economic growth was stronger than forecasts.

And recent house surveys from the Halifax and Nationwide have indicated prices are still rising, albeit at a slower pace than in recent years. Philip Shaw, chief economist at Investec Securities, said he believed rates would remain at 4.75% for the rest of the year although strong economic data could lead to a further hike. "The economic landscape has changed quite considerably over the last couple of months, " he said. "Growth appears stronger and the MPC may become more concerned about inflation trends." Howard Archer, economist at Global Insight said the MPC "may well consider that the balance of risks to the growth and inflation outlook have moved from the downside to the upside".

Business groups welcomed the MPC's widely-expected move to leave rates on hold and cautioned against further rises. The British Chambers of Commerce (BCC) said it was "concerned by the clamour in some quarters" for early interest rate increases. "We believe that these demands should be firmly resisted," said David Frost, BCC director general. "Manufacturing still faces extremely serious problems and is performing poorly, in spite of the recent revised figures." Ian McCafferty, chief economist at the CBI, said the MPC faced an "interesting" challenge. "Consumers appear to have pulled in their horns over the holiday period, and exporters are struggling with the strength of sterling," he said. "However, the broader economy continues to show healthy growth, and the tight labour market and buoyant commodity prices are nudging inflation higher."