City expects Bank's freeze on rates to end next month

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The Independent Online

Homeowners and businesses breathed a sign of relief yesterday after the Bank of England held back from raising interest rates - although the comfort may be short-lived.

The Bank's Monetary Policy Committee voted to leave interest rates on hold at 4.75 per cent. Analysts said the decision could have been a three-way split, which would pave the way for an interesting debate at the MPC's November meeting.

A majority of City economists expect the Bank to raise rates in November, as it will be able to explain the move at the press conference to unveil its quarterly economic forecasts.

"This may be a relief to homeowners but it is likely to prove short-lived," Tom Vosa, at Yorkshire Bank, said. "The markets expected there to be no change this month but have already priced in a rise in November."

Economists said that given the mixed economic news over the past month, there was almost certainly a vigorous debate at yesterday's meeting which may even have translated into a split vote. Since the last meeting of the MPC, inflation, retail sales, manufacturing, house prices and money supply have risen. However estimates of the second-quarter GDP were cut, the labour market weakened, oil and petrol prices fell and the US economy showed signs of slowdown.

Howard Archer, at Global Insight, said: "It is possible that some MPC members voted for another precautionary rise in the face of consumer price inflation being above target and set to head toward 3.0 per cent."

Sir John Gieve, a deputy governor at the Bank, has said he thought of voting for a rise last month. On the other hand, the minutes of September's meeting showed one member - certainly David Blanchflower - was "minded to seek a reversal" of August's increase. "A rate rise is far from a foregone conclusion," Phil Shaw, at Investec, said.

The EEF, the manufacturers' organisation, welcomed the decision and said the prospect of lower oil and gas prices, and continued moderate growth in wages and earnings, had reduced upward pressures on inflation.

Steve Radley, its chief economist, said: "While we are not out of the woods yet, there are some signs the biggest drivers of the recent increase in inflation are set to ease over the next year. So... the Bank can afford to keep its powder dry for the moment."

The Institute of Directors said it expected the Bank would apply the brakes in November. Graeme Leach, chief economist, said: "The Bank is playing for time, scanning the economy for evidence that might prevent another rate rise, but it is unlikely to find it."