Bank keeps interest rates on hold

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The Independent Online

The Bank of England held interest rates at 5.25 per cent today, but is widely expected to cut them by the middle of the year to shore up an economy buffeted by the global credit crunch.





All but one of 65 economists polled last week forecast the Bank would leave rates on hold after cutting them twice in the past three months. These expectations were cemented by surveys this week showing inflationary pressures accelerating.



But another cut is expected soon as other data shows house prices falling and consumer confidence crumbling as worries mount over the US economy entering recession.



"We expect the next move to come in May, in line with the consensus view, and see Bank Rate falling to a low of 4.5 per cent by the end of this year," said George Buckley, chief UK economist at Deutsche Bank.



Sterling edged up versus the dollar and euro, while interest rate futures slipped as some dealers had prepared themselves for the kind of surprise cut that the BoE has made in the past.



The BoE made no statement to accompany its decision but policymakers have been out in force in recent weeks saying they had to balance the competing demands of slowing growth and rising inflation.



Soaring oil prices and the rising cost of food is putting huge upward pressure on inflation around the world. Policymakers are worried it could soon top 3 per cent in the UK, requiring the central bank Governor Mervyn King to write an explanatory letter to the government.



Against that, however, the credit crunch is raising financing costs for both consumers and companies. The effects can already be seen in the housing market. Prices fell 0.3 per cent in February, according to Halifax, the nation's largest mortgage lender.

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