Interest rates stay on hold

07-09-2006

Interest rates will remain at 4.75 per cent this month, the Bank of England said at lunchtime.

Following its September meeting, the bank's monetary policy committee (MPC) voted to put off another move following last month's increase.

August's 0.25 per cent rise was the first change in the cost of borrowing for 12 months and came in response to growing inflationary pressures.

Higher energy bills driven by rising oil prices continue to threaten the bank's inflation target and have prompted a number of commentators to predict another increase in interest rates.

"A further rise in average earnings growth or inflation expectations could easily spook the committee into raising rates again before the end of the year, most likely in November," warned Vicky Redwood of Capital Economics.

Exporters will be hoping to avoid a further increase as they struggle to keep their goods competitive in key markets such as the eurozone.

The latest figures suggest that manufacturing continues to struggle with the Office of National Statistics (ONS) announcing this week that industrial production increased by just 0.2 per cent in July.

Responding to last month's increase, the CBI expressed its disappointment at the decision but said that it hoped the move would "remove the risk of a more significant increase later in the year".

Homeowners will also be hoping for another period of static interest rates as further increases will threaten the already fragile growth in property prices.

The Halifax said this morning that house prices rose by one per cent last month, prompting the high street lender to warn that growth "continues to moderate".

The cost of borrowing in the UK is on a steady upward trend after reaching a low of 3.5 per cent in July 2003. The decision to increase it from 4.5 per cent to 4.75 per cent last month was the first move since August 2005.



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