Bank holds interest rate steady for sixth month

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The Independent Online

The bank of England yesterday decided to leave interest rates on hold at 6 per cent for the sixth month in a row.

The bank of England yesterday decided to leave interest rates on hold at 6 per cent for the sixth month in a row.

The decision was greeted with relief by business groups and trade unions, which had warned that another rate hike would have dealt a major blow to Britain's struggling manufacturers and exporters.

It was the first meeting of the Monetary Policy Committee (MPC) since the Government unveiled its £43bn hike in public spending. Its decision will be seen by the Chancellor, Gordon Brown, as supporting his claim that the spending review was affordable.

The MPC did not issue a statement with its decision, but intends to publish its reasoning next week in its quarterly inflation report.

The Confederation of British Industry welcomed the decision but said it was vital that rates did not rise again later this year. "This will help soothe fears that manufacturing could slip back into a downturn," Kate Barker, its chief economic adviser, said. "But companies across the economy will need longer term respite as they struggle to compete in tough foreign markets. We should no longer assume that the next rate move will be up."

The British Chambers of Commerce said the Bank of England was right to "sit on its hands". "It must resist further rate rises unless there is clear evidence of significant inflationary pressure."

The Trades Union Congress praised the decision as "responsible and realistic", but individual union leaders criticised the Bank for failing to cut rates. John Edmonds, the general secretary of the GMB general union, said it was a "completely inadequate response to the crisis facing UK industry". Roger Lyons, the head of the white collar Manufacturing Science Finance (MSF) union said thousands of jobs were at risk from the excessively high level of interest rates and sterling.

The decision was greeted with little surprise in the City of London, where analysts had expected to the Bank to leave rates on hold. Recent figures showing a slowdown in the housing market and the level of pay awards and bonuses strengthened the case for the MPC not to put up rates.

But many analysts believe rates must rise by 0.25 or 0.5 per cent by the end of the year to ensure inflation stays under control. "The risk has got to be that we will see another hike before we see a cut," one said.