Bank of England leaves interest rates at 4%
By Anna Fifield
01/09/2003 07:20
The Bank of England on Thursday left interest rates unchanged at 4 per cent for the 14th consecutive month, continuing the most stable interest rate period in more than four decades.
Although there are tentative signs that domestic demand might be starting to slow, economists had expected the Bank's monetary policy committee to keep rates on hold while house price inflation remained high.
Halifax, the country's largest mortgage lender, earlier on Thursday said house prices rose 26.4 per cent in the year to December but decelerated from the 29.2 per cent reported for November. It expects house price inflation to slow to about 9 per cent in 2003.
This is broadly in line with data from Nationwide, the second-biggest lender, which last week said house price inflation was 25.3 per cent over the same period and seen at 10 per cent this year.
As usual the MPC gave no reason for its decision. The minutes will be published in two weeks' time.
After 2002, the first calendar year since 1959 that rates remained unchanged, the MPC might be starting the year in a similar vein, but this is unlikely to continue.
Some economists say the chances of a rate cut are increasing, especially if domestic demand softens and manufacturing continues to contract.
Signs that retail sales growth is slowing prompted the British Retail Consortium to warn that rate cuts would be needed if the Bank wanted to the consumer to continue to sustain the economy.
Amicus, Britain's biggest private sector union, on Wednesday called for a half-point interest rate cut, warning that 200,000 manufacturing jobs could be cut if rates stayed on hold.
However, other analysts suggest that lower rates in the US and the eurozone would rebalance the economy by creating greater export demand and lessening the dependence on consumers to generate growth.
The European Central Bank will also set rates on Thursday, but after a half-point cut to 2.75 per cent last month, it is expected to leave rates on hold.
Sir Edward George, the Bank governor, last week appeared to rule out a chance of a cut with some bullish comments on the economy.
"We are anticipating that UK economy will grow close to trend and inflation remains close to target. That's not something that implies a sharp change in interest rates in either direction," he said on Friday.
At 2.8 per cent, inflation is slightly above the Bank of England's 2.5 per cent target, and rising house prices and increasing petrol prices could push it over 3 per cent, also diminishing the likelihood of a rate cut. |
