Interest rates stay put

Millions of homeowners were given a boost today after the Bank of England opted to keep interest rates at 4.75 per cent.

Millions of homeowners were given a boost today after the Bank of England opted to keep interest rates at 4.75 per cent.

Economists had predicted the move after a string of surveys and official data pointed to a slowdown in consumer spending and a possible end to the house price boom.

Despite the reprieve, experts warned households that a further increase in interest rates was likely before the end of this year.

A rate rise today would have added £10 a month to an average £65,000 mortgage and represented the second time that the Bank's Monetary Policy Committee (MPC) has backed consecutive month-on-month hikes.

The MPC has raised rates five times since November amid fears of rising inflation and spiralling household debt.

However, expectations that the rate-raising cycle is near its peak emerged last month when a quarterly Bank report showed inflation on course to meet its 2 per cent target over the next two years.

Today's meeting will have taken into account the latest signals that the higher cost of borrowing was starting to restrain rampant house price growth.

Banks approved 20 per cent fewer mortgages in July, while the Halifax said house prices fell by 0.6 per cent last month - the first decline for two years.

And although poor weather played a part in stalling retail sales last month, experts said consumers were less likely to make major purchases because of pressure on their budgets.

The no-change decision by the MPC was welcomed by manufacturing leaders who have seen recent rate hikes take place against a backdrop of rising raw material prices, particularly in oil and steel.

Official data showed manufacturing output unexpectedly falling by 0.2 per cent in July on sharp declines in the production of beer and medicines. Experts had expected it to rise by as much as 0.5 per cent.

Manufacturer's organisation EEF said maintaining rates at 4.75 per cent should mark the start of a longer period of stability in interest rates.

EEF chief economist Steve Radley, said: "The evidence suggests the Bank has succeeded in taking the steam out of the economy without damaging manufacturing."

Business leaders also breathed a sigh of relief, although concerns remain that official statistics may be understating GDP growth. Higher oil prices and a tight labour market meant other inflationary pressures were continuing to build in the economy.

CBI chief economic adviser Ian McCafferty said: "With the outlook more uncertain, business needs a period of stability and the Bank is right to sit tight until things become clearer."