Interest rates remain unchanged

24-08-2006

The Bank of England has today kept interest rates on hold for the tenth consecutive month.

The bank's Monetary Policy Committee (MPC) announced at 12:00 BST that the benchmark interest rate will remain at 4.5 per cent.

Economic analysts had claimed that MPC members were likely to vote for an increase in rates at their next meeting amid fears of growing inflation and signs of economic growth.

Inflation hit the Bank of England's two per cent target in April, prompted by increasing oil costs.

The bank has warned that inflation could rise above the two percent target within two years if interest rates remain at their current level.

The US Federal Reserve and European Central Bank (ECB) have already increased interest rates in order to ease inflation, with the ECB today expected to raise the eurozone's benchmark rate for the third time since December, to 2.75 per cent.

Signs that the economy is performing well have also fuelled expectations of a future rates rise in the UK, with figures released on Tuesday showing a modest increase in consumer spending in May, as sales of televisions and clothing received a boost ahead of this month's World Cup.

But the British Retail Consortium warned against a rise in interest rates, warning that consumer confidence remained "fragile".

While the country's manufacturing sector has also shown signs of recovery over recent months, fears of a rates rise have cooled the revival in the housing market.

At last month's rate setting meeting MPC members were split over whether to implement a rate hike. David Walton was the only member to vote for an increase, Stephen Nickell opted for a rate cut and the rest of the committee voted to keep rates on hold.

New MPC member David Blanchflower, who has replaced Nickell, had not previously indicated how he intended to vote at his first rate setting meeting, with the minutes of today's meeting to be published at 09:30 BST on June 21st.


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