Bank of England holds interest rates

The Bank of England held firm amid the growing clamour for a cut in interest rates this month.

A suite of negative economic data has emerged since the Bank's interest-rate-setting Monetary Policy Committee (MPC) met in June, and many commentators believed that this could lead to an interest cut today.

Interest rates have now been steady at their three-and-a-half year high of 4.75 per cent for 12 months.

Following the decision to hold rates today, the analysts now believe they are set to fall next month.

"The decision to leave interest rates unchanged today is likely to have been a close run thing, and we expect a 0.25 per cent cut to occur in August," said Howard Archer, chief UK economist at consultancy firm Global Insight.

He added that he expects a further cut in rates to 4.25 per cent to follow in November, as continuing below-trend growth sets in.

Last month there were distinct signs that the Bank was moving towards a rate cut.

The minutes of June's MPC meeting showed that three members of the nine-strong committee changed their opinion towards a rate cut.

It had been 23 months since a member of the MPC voted for a cut in rates, but both Charles Bean and Marian Bell (who has since left the committee and been replaced by ex-Goldman Sachs economist David Walton) did so in the June 9 meeting. Additionally deputy governor Andrew Large shifted his position from calling for a rates rise to voting with the majority for a freeze.

Mr Large had voted for an increase in interest rates for the last three months.

And during the meeting members of the MPC were calling for prompt action to halt the slowdown in consumer spending.

"While there were arguments in favour of waiting for more information before taking action, that risked the slowdown in consumption becoming more entrenched. A small reduction in rates now might obviate the need for a larger reduction in interest rates at a later date," the minutes stated.

These comments, combined with recent negative data, led people concluded that interest rates are set to fall in the near future - with the majority of analysts now predicting a quarter-point cut in August.

Reacting to the Bank of England's decision to leave interest rates on hold, CBI chief economic adviser Ian McCafferty said: "Many businesses will be disappointed that the MPC decided not to cut interest rates immediately.

"While the economic situation is not desperate, it is clear that manufacturing is teetering on the verge of recession, the retail sector is under considerable pressure and the housing market is stagnant.

"As there seems little risk of inflation, a cut in interest rates would be welcome, sooner rather than later."