Bank keeps interest rates on hold for 14th month in a row

The Bank of England resisted calls for a cut in interest rates to offset signs of a slowdown in consumer spending and left rates on hold yesterday.

The Bank's Monetary Policy Committee decided to keep the base rate unchanged at its 39-year low of 4.0 per cent for the 14th month in a row.

The European Central Bank also kept its benchmark lending rate unchanged at 2.75 per cent yesterday.

The decision by the MPC had been widely forecast and came as little surprise to industry, trade unions or the financial markets. But there is growing speculation that the next move in rates will be down rather than up, amid evidence that the domestic economy is weakening.

The strength of consumer and government spending has for some time offset weakness in the manufacturing and export sectors, allowing the Bank to keep rates on hold. But there is growing anecdotal evidence that households are losing their willingness to spend on the high street or in the housing market.

Yesterday Selfridge's and House of Fraser became the latest companies to report a lacklustre Christmas trading session compared with a year ago. The Confederation of British Industry says the high street has suffered its worst Christmas for a decade.

The Engineering Employers' Federation said a slowdown in consumer spending had removed a major obstacle to cutting rates. "It will be increasingly hard for the MPC to justify holding rates at their current level," Stephen Radley, its chief economist, said.

There were also fresh signs that the house price boom was finally running out of steam. Halifax, the UK's largest mortgage lender, said prices rose in December by 1 per cent, the slowest rate for four months.

Some economists said a cut in rates later this year was a real possibility. "The critical question is the degree to which the MPC will allow spending to moderate amid a paucity of signs that the world economy is getting back on its feet," Philip Shaw, at Investec, said.

"Concerns at home and abroad may well encourage the MPC to lower rates, albeit begrudgingly, during the spring."

But others said the MPC was unlikely to rush into cutting rates when the evidence was still mixed. Yesterday John Lewis, the department and food store group, reported a 22 per cent surge in sales in the latest week.

Michael Saunders, an economist at Citigroup, said: "It would take extraordinarily bleak news to prompt the MPC to cut rates in coming months."