Bank of England leaves key interest rate unchanged

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The Independent Online

The Bank of England left a key interest rate unchanged at 5 percent Thursday, in spite of calls from industrialists and trade unions for an additional cut to help Britain's ailing manufacturing businesses.

The bank has trimmed its base rate four times this year for a total reduction of 1 percent in an effort to head off a possible recession.

However, consumer spending and the housing market remain strong, and the bank's monetary policy committee is afraid that a further rate cut might trigger inflation.

"This decision is disappointing but not surprising," said Ian McCafferty, chief economic adviser for the Confederation of British Industry.

"Retail sales have been very strong over the last few months, but this strength is not reflected in other areas of the economy," he said. "Recent evidence suggests the weakness in manufacturing is widening into the service sector, including services bought directly by consumers."

As usual, the monetary policy committee did not immediately explain its decision.

The base rate is what Britain's central bank charges other financial institutions, and it serves as the bank's main tool for fighting inflation. A cut in the base rate makes loans cheaper and therefore stimulates borrowing and overall economic activity.