Bank holds interest rate again

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The Independent Online

Interest rates were pegged at 4.5% for the ninth month in a row today amid growing signs that the next move from the Bank of England could be upwards.



The latest no-change decision by the nine members of the Bank's Monetary Policy Committee (MPC) had been widely anticipated in the City.

But expectations have switched from a potential rate cut later in the year to the possibility of a rise as analysts digest a raft of more positive data from the UK economy, including the beleaguered manufacturing sector.

The Halifax today reported the biggest jump in house prices for two years while it emerged the services sector was its busiest since 2004 in April.

Inflation is currently below the Bank's 2% target at 1.8%, but the MPC will be concerned that stronger economic growth and sky-high oil prices could put upward pressure on the figure. A quarterly report from the Bank next week is expected to give the City more clues about the next movement for rates.

Investec chief economist Philip Shaw said: "There's a growing risk that rates may rise this year. Uncertainty on the future direction is considerable at this point in time, but most evidence is pointing towards a rates rise."

The National Institute of Economic and Social Research, a think-tank, called at the weekend for rates to go up because of the threat of higher inflation.

But Steve Radley, chief economist at the manufacturers' organisation EEF, believed that consideration of a rate rise was premature.

He said: "With growth showing no signs of moving above trend and inflation subdued, it is far too early to start talking of increases in rates. The Bank must continue to keep its finger off the trigger until there is a stronger case for a move in either direction."

The view was endorsed by Ian McCafferty, the CBI's chief economic adviser, as he said the Bank still had room to cut rates.

He said: "We believe that inflationary pressures remain under control, and notwithstanding recent news, the economic outlook is sufficiently fragile to permit a small cut in rates."

The Bank of England increased interest rates to 4.75% in August 2004 before cutting its base rate back to 4.5% a year later.

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