Fear of MPC split as Bank sticks by 7.25%interest rate alone

THE Bank of England's Monetary Policy Committee (MPC) opted not to raise interest rates yesterday in what most observers reckoned must have been a close vote - perhaps even a 4-4 split requiring the casting vote of Eddie George, the Governor.

While it proved to be no distraction for the stock market's woes, the announcement brought huge relief to industry.

Kate Barker, chief economist at the Confederation of British Industry (CBI), said growth was already slowing as the five rate rises since last May took effect. Ruth Lea, at the Institute of Directors, said: "Interest rates are now probably high enough to contain inflationary pressures."

However, the pound perversely climbed back above the DM3.00 barrier, in reaction to hints of a cut in German interest rates.

The MPC made its decision in the light of an outline of the general Budget stance given by the Treasury's observer at its meetings. Last week the Chancellor of the Exchequer stressed there would be no let up on fiscal prudence in the Budget on 17 March.

The Committee also had new signals of buoyant consumer spending yesterday. The CBI's monthly survey of the high street suggested a slowdown in retail sales during February but a buoyant underlying trend. This followed an earlier survey showing resilient activity in the service industries, suggesting the impact of the strong pound on manufacturing tipped the MPC's verdict.

According to the CBI, the balance of retailers reporting increased sales dipped to 33 per cent from 36 per cent in February, while expectations for March also declined. But the three-month trend and year-on-year rate of growth picked up. In addition retailers' investment plans bounced sharply to a level even higher than during the late-1980s boom.

Alastair Eperon, chairman of the CBI's distributive trades panel, said: "The underlying trend shows that sales growth is holding up well," although he added that trading conditions were very competitive.

Oddly, in the light of Wednesday's warnings from furniture retailers DFS and MFI, the survey showed this sector doing particularly well. Footwear was the only one to report a drop in sales.

Separately, the Society of Motor Manufacturers and Traders said new car registrations jumped to 177,133 in February, 8.3 per cent up on the same month a year earlier. The SMMT said this continued the trend of recent months.

But the Retail Motor Industry Federation said the figures were unsustainable, and predicted that registrations this year would be lower than last year's "exceptionally high" 2.17 million.