Interest rate freeze sparks City talk of pre-election increase

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The Independent Online

The threat of a pre-election increase in interest rates was left hanging in the balance yesterday after the Bank of England decided to leave monetary policy unchanged.

The threat of a pre-election increase in interest rates was left hanging in the balance yesterday after the Bank of England decided to leave monetary policy unchanged.

The decision to keep rates on hold, at 4.75 per cent, for the seventh successive month had been widely predicted. But the Bank issued no statement, leaving economists split over the next move in monetary policy.

A little more than half of 50 economists polled last week forecast a quarter-point rise by June. The next rates decision is on 7 April but if the election were held on 5 May the next decision would be delayed until 9 May.

Last month, the minutes of the meeting of the Monetary Policy Committee put the markets on notice for a rise, showing that one member voted for an increase while others thought a rise might be "warranted".

Since then the position has become more confused, with recent data pointing to weakness in the consumption sector but four members of the MPC warning of inflationary pressures. Philip Shaw, at Investec, who predicts rates will remain steady this year, said: "The MPC's strategy appears to be one of wait and see." He said next week's February retail sales data would confirm a broader slowdown in consumption.

Last month Stephen Nickell, an MPC member, told The Independent it would be a mistake to raise rates and then discover that consumption was slowing sharply. Ross Walker, at RBS Financial Markets, which expects a rate rise after May, said: "Further monetary policy tightening remains contingent upon ... further evidence of emerging inflation pressures."

There was further evidence of pressure on pay yesterday. Incomes Data Services, the pay analysts, said it had revised its estimate of wage deals in January to 3.3 from 3.2 per cent.

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