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Bank holds interest rates

02/08/2007

The Bank of England has held interest rates at 5.75 per cent in its monthly decision.

Its monetary policy committee (MPC) met this morning to discuss whether the current economic situation, whose upward inflationary pressures have seen five rate hikes in the last 12 months, justified a further rise in August.

Today's announcement, revealed at midday, saw it stay its hand in a move widely expected by analysts.

A combination of uncertainty about global markets and the uncertain impact of previous rises on consumers' behaviour is believed to have convinced the MPC into adopting a 'wait and see' approach this month.

Howard Archer of research firm Global Insight said prior to the decision: "We suspect a majority of the MPC believe that an immediate further rate hike is unadvisable and that the best course of action is for the Bank to hold fire in the near term at least."

Poor weather so far this summer is distorting retail sales, making it unclear whether consumers are staying at home because they feel their spending power is diminished or because they want to avoid the rain.

Slowing growth in house prices is also suggesting previous rate hikes are beginning to bite, while job security remains diminished.

All these factors will have influenced the MPC staying their hand in August. Most analysts nevertheless expect rates will reach at least six per cent by the end of the year, however, as consumer price index inflation continues to threaten the three per cent upper threshold set by the Treasury.

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