Bank of England holds rates at 4.75%

The Bank of England kept higher borrowing costs at bay for millions of homeowners today by freezing interest rates for the eighth month in a row.

In a move widely expected by the City, the Bank’s nine-strong monetary policy committee (MPC) announced it was holding rates at 4.75% following its monthly meeting.

The no-change decision is the last by the MPC before the General Election next month and followed evidence that consumer spending remains subdued.

A cooling housing market has meant many households are reluctant to spend money and this has restricted the ability of businesses to pass on rising costs, keeping inflation under control.

At the start of the year, expectations had been for an imminent rate rise but signs of deteriorating conditions weakened the case.

CBI chief economic adviser Ian McCafferty said: “The state of the economy into the spring is not yet clear so a rate rise this month would have been both risky and premature.”

Despite the view in the City that rates would be left on hold, economists have seen two MPC members vote for higher borrowing costs at the previous meeting of the committee.

Both Sir Andrew Large and Paul Tucker argued in favour of rates moving up to 5% in March, while only Mr Tucker broke ranks a month earlier.

But recent economic data has not appeared strong enough to economists to justify a fresh hike at this stage and many stick by the view that interest rates have peaked.

Investec economist David Page said today’s manufacturing figures showing a 0.5% drop in output in February provided the final confirmation that an immediate rate rise was unnecessary.

The publication of its quarterly Inflation Report in May could provide the springboard for more MPC members to take a hawkish view of economic direction in the UK and back a rise.

Steve Radley, chief economist of manufacturers’ organisation EEF, said inflation should remain muted as higher wage costs were absorbed by rising productivity.

Inflation has not shown any volatility recently, remaining at 1.6% in February for the third month in a row.

The slowdown in consumer spending has been highlighted by official data and a string of industry snapshots, including a CBI survey for March which found retail sales for the time of year at their worst since November 1992.

The cautious attitude reflects a weaker housing market, with the Halifax – the UK’s largest lender – reporting there has been virtually no change in property prices since September.

Rival lender the Nationwide reported prices had fallen by 0.6% in March – the most since June 1995.

David Frost, director general of the British Chambers of Commerce, was alarmed that two MPC members supported a rate rise last month and urged the Bank to hold fire.

He said the underlying risks facing business, and manufacturing in particular, meant the MPC must persevere with a cautious stance and hold interest rates until the situation became clearer.