Interest rates held

Bank of England holds interest rates at 4.5 per cent

Thursday, 04, May 2006 12:00

The Bank of England today held interest rates at 4.5 per cent, the ninth consecutive month in which they have been frozen.

The announcement, which means people's mortgages will remain at roughly the same level, was widely anticipated, with just 119 of 120 economists polled predicting a freeze.

Analysts say that with inflation at 1.8 per cent and few significant economic problems, the base rate of interest is unlikely to change for the rest of the year.

Jonathan Said, chief economist at the centre for economic and business research (cebr), said the case for keeping the base rate at 4.5 per cent "remains compelling".

"With the economy on course to beat Gordon Brown’s forecast range of two per cent to 2.5 per cent growth in 2006 and with the housing market refusing to go on holiday with the Bank, the case for lower interest rates in 2006 seems untenable," he said.

If oil prices suddenly increased in the same way that they did last summer, there might be a chance that interest rates would rise later in the year, he said, but added that the "highest probability" was for rates to stay where they are.

However, the British Chambers of Commerce (BCC) warned an increase would be "extremely damaging", and said a cut would be better to encourage economic growth.

"We accept that the Bank's monetary policy committee (MPC) has made the right decision today. But we strongly urge the MPC to maintain a flexible approach, and react quickly to renewed signs of economic weakness," said director general David Frost.

"Although the worst may be over for the UK economy, the upturn is very fragile. Businesses struggle in the face of huge burdens, and the recovery is vulnerable to setbacks. The UK labour market continues to weaken."