Bank holds rates steady at 6% for seventh month

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The Independent Online

The Bank of England left interest rates unchanged at 6 per cent for the seventh month running after its monetary policy meeting yesterday.

The Bank of England left interest rates unchanged at 6 per cent for the seventh month running after its monetary policy meeting yesterday.

The decision, although welcomed by industry groups, did not bring much respite from the strong pound, as the euro remained near its all-time lows. Attempts by French and German officials to talk up the plummeting currency met with failure.

Traders said conditions in the currency markets were becoming disorderly, putting the euro's embarrassing decline at the top of the agenda for the meeting of G7 finance ministers and central bankers this month.

A chorus of comments did nothing to undo the damage done by Gerhard Schröder earlier this week. The German Chancellor had described the weak currency as "a joy" for exporters. Yesterday he backtracked, saying: "The eurocurrently doesn't reflect the economic power of Germany and Europe. The current trend is unpleasant, but the economic power of Germany and Europe is so strong that sooner or later markets will react to it."

However, analysts held out little hope for a recovery in the euro as long as the dollar and the United States economy looked so attractive to investors.

The pound yesterday ended little changed against the euro, although close to a seven-year low of $1.4317 against the dollar. The sterling index ended at 106.4, down slightly on the day but up from 105.5 earlier this month as a result of the single currency's woes. The euro remained just slightly above its all-time low of 86.37 cents against the US currency.

The pattern of gaining against the euro and falling against the dollar seen during the past month is the worst possible for British businesses, as it raises the cost of imports of raw materials priced in dollars - like oil - while also making it harder to export to the European market. What's more, analysts warned that the downward trend in sterling left open the possibility of a future rise in interest rates.

"Steady as she goes from the MPC at present, but it is too early to pop the champagne corks," said Ciaran Barr, UK economist at Deutsche Bank.

Although economic signals have been mixed, a falling pound could boost inflationary pressures. Some economists also suspect demand has not slowed enough to satisfy the MPC, and predict one or two further rate increases. Minutes of the August meeting showed a 5-4 majority in favour of no change, and City observers believe that split was repeated yesterday.

However, business organisations said the Bank should signal that rates had now peaked. Kate Barker, chief economist at the Confederation of British Industry, said: "Cost pressures are picking up, but most companies cannot pass these on to their consumers, either at home or abroad."