Interest rates held for tenth month

THE Bank of England Monetary Policy Committee has spared homeowners a rise in the cost of borrowing by pegging interest rates at 4.75% for the tenth month in a row.

Signs of slowdown in spending on the High Steet and fears for the health of manufacturers appears to have been enough to convince committee members, one of which has been calling for an increase, to order another freeze.

Most economists are now pencilling in a cut before the end of the year to kick-start spending. A few months ago, some were predicting rates would climb as high as 5.5% during 2005.

But a weaker economic outlook coupled with concerns for the property market have deflated that expectation.

'We believe that further below trend growth over the next few months will erode the Bank of England's concern over medium-term inflation risks and prompt an interest rate cut around October,' said Howard Archer, economist at City research firm Global Insight.

'We suspect that the MPC will be reluctant to move before then, due to the risk that growth could pick up over the summer and fuel potential inflationary pressures currently still stemming from the lack of an output gap and tight labour market.'

The base rate has risen from a 48-year low of 3.5% in 2003 to reach 4.75% last August. Millions of people took advantage of cheap rates on mortgages and credit cards and have since been hit with higher repayments.

Evidence has been mounting in recent days of families struggling with their finances. The Royal Bank of Scotland, owner of NatWest bank, yesterday revealed that card arrears and bad debts are climbing, confirming recent warnings from Barclays, HBOS and HSBC.