Bank set to keep rates on hold

THE Bank of England is almost certain to keep interest rates on hold at 4.75% today, according to economists.

A raft of recent data suggesting that the UK's property boom has ended, High Street spending has eased and that the recovery in manufacturing may have gone into reverse should be enough to delay a rate rise.

'It seems a cast iron certainty that the Bank of England will leave interest rates unchanged,' said Howard Archer, economist at consultancy Global insight. 'Indeed, there is a growing possibility that the Bank could leave interest rates unchanged for the rest of this year.'

The Bank's monetary policy committee, which has raised the base rate five times since it was at a 48-year low of 3.5% last November, is due to announce its decision at midday following a two-day meeting. The rises will have increased the monthly repayments on a 25-year £100,000 mortgage by around £100.

A few months ago, analysts had been predicting several more quarter-point rises this year as the Bank attempted to slow the relentless rise in house prices. However, last week Halifax, the UK's largest lender, said property values fell an average 0.6% in August.

Meanwhile, figures this week revealed manufacturing output contracted for the second successive month in July and the British Retail Consourtium said sales in August were up 0.6%, down from 1.7% the previous month.

After the run of soft economic data, the debate has really swung round to whether or not the MPC will raise rates again this year with a growing number of analysts prepared to stick their necks out and call 4.75% the peak.

It was only last month, before the latest data, that Charles Bean, chief economist at the Bank, said the 'normal' interest rate, which neither fuels nor suppresses inflation, was not far off. He said then that rates would probably need to go a 'bit' higher.

If 4.75% turns out to be the peak, it would be much lower than figures seen in previous rate cycles when 6% was reached in February 2000 and 7.5% in June 1998.

Even most analysts predicting a further hike in November do not expect many more increases next year, especially after the Bank's last quarterly forecasts in August suggested that just one more quarter-point rise could be enough to ensure inflation hits its 2% mtarget. The most recent Consumer Prices Index for July showed inflation slowing from 1.6% to 1.4%.

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