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To: maceng2 who wrote (510)	1/8/2004 8:13:17 AM
From: maceng2	Read Replies (1) \| Respond to of 1417

Bank of England holds rates at 3.75% By Anna Fifield, Economics Reporter Published: January 8 2004 12:00 \| Last Updated: January 8 2004 12:00 The Bank of England on Thursday left interest rates unchanged at 3.75 per cent, as widely expected, after its first meeting using the new inflation target. The Bank has signalled that it is likely to embark on a gradual series of interest rate rises this year as the economy strengthens, and the consensus among economists is for rates to reach 4.5 per cent by the end of the year. But most expected the Bank's monetary policy committee to wait until February, when it will publish its quarterly inflation report, before moving again. The quarter-point rise in November was the first increase in almost four years and the MPC has acknowledged that it is unsure what kind of effect that increase will have on the housing market and consumer demand. Property prices and consumer spending have rocketed in recent years, pushing household debt to record levels. But the MPC's scope to try to cool these markets has been restricted by the weakness of industries such as manufacturing. Compounding the MPC's tricky balancing act, Gordon Brown last month changed the measure of inflation and therefore the MPC's target. Will interest rates go up this year? Join the discussion During the pre-Budget report, the chancellor replaced the retail price index with its target of 2.5 per cent with the international standard consumer price index, which excludes housing costs so it has a lower target or 2 per cent. This meant that with a sweep of Mr Brown's pen, inflation went from being on target with the MPC's to well below it. The latest official data put the inflation rate at 2.5 per cent under the RPI but 1.3 per cent according to the CPI. Economists said this would make it difficult for the committee to explain to the public why it was raising interest rates when price pressures appeared to be low. "While the MPC will have provisional forecasts for CPI over the usual projection horizon, there may be a desire to wait until the full forecasting round next month before tightening policy," said George Buckley of Deutsche Bank. Furthermore, recent data had been "fairly mixed", with business investment failing to recover, household borrowing softening and confidence remaining fragile, Mr Buckley said. But at the same time, economic growth in the third quarter was revised up, December sales appeared better than previous months and corporate profitability had improved. The EEF, the manufacturers' organisation, on Thursday was relieved that the MPC has delayed the next rate rise, saying the pound's rise against the dollar was already creating problems for businesses that exported to the US. The strength of the pound against the dollar would help to keep inflation well below target, minimising the need for further rate rises, said Steve Radley, the EEF's chief economist. "The pound's strength against the dollar reduces the prospects of rising inflation and gives the MPC some breathing space before making its next move. By holding off from raising rates, it may help to slow the pound's rise against the dollar and provide some relief to exporters," Mr Radley said. news.ft.com