Rates kept on hold, but rise is likely early next year

THE BANK of England left interest rates unchanged at 5.5 per cent yesterday, to the relief of industry and homebuyers alike. But the widely-expected decision simply postponed the next rise in the cost of borrowing, City experts said.

"It is only a matter of time. The economy is clearly growing at an above- trend pace," said Kevin Gardiner at Morgan Stanley.

With the tight jobs' market, double-digit house price inflation and prices rising in the service sector, the Monetary Policy Committee is expected to raise rates in February or March.

"There was no urgency this month," said David Walton, an economist at Goldman Sachs. "By the end of February, the MPC will have a lot of new information about the wage round and the strength of Christmas and New Year spending."

John Monks, general secretary of the TUC, said: "It would be even better for industry and jobs if the Bank's Millennium Year resolution was a promise not to raise rates for the forseeable future."

Ian Peters, deputy director of the British Chambers of Commerce, said: "A further interest rate rise at this stage would have been overkill. The strength of the pound and fierce competitive pressures in the economy are keeping inflation at bay."

Separately, a Treasury Committee report said yesterday that the row over research resources for external members of the MPC could have discredited monetary policy.

"We do not agree with the Governor's characterisation of the dispute as a `storm in a teacup'. The considerable standing of the MPC must not be put at risk by a public row of this sort," it said.

The pound yesterday edged to its highest level since April 1998, with its index against a range of currencies touching 107.0.

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