Bank freezes interest rate again

The Bank of England decided today to leave interest rates unchanged at 3.75 per cent.

The Bank's nine-member monetary policy committee (MPC) froze the base rate for the second month in a row after raising it in November for the first time in almost four years.

Economists said initial signs that consumer spending had been satisfactory, though not extraordinary, during the Christmas period were likely to have influenced the committee's decision.

Members are also likely to have been swayed by a surprise fall in December's inflation figure - down to 1.3 per cent against a new Government target of 2 per cent.

But with economic growth picking up, many analysts are tipping an increase to 4 per cent as early as next month.

In terms of today's decision, the CBI said the MPC had clearly been aware of consumers' higher-than-usual sensitivity to rate rises, the pound's strength against the dollar and continuing weak business investment.

CBI chief economist Ian McCafferty said: "Growth is still focused on a few sectors of the economy, the mood of the consumer through Christmas and the New Year is unclear and business confidence remains relatively fragile, though it is improving.

"As the recovery unfolds, rates will need to rise further, but with inflation under control, the Bank should be in no hurry."

The British Chambers of Commerce (BCC) said the MPC had made the right decision for business.

BCC director general David Frost said: "We urge the bank to make a New Year's resolution to keep rates low.

"Inflation has fallen back to its target level, leaving the MPC every opportunity to keep rates on hold for the foreseeable future.

"A trend of rising interest rates in the coming months would worsen the already tough conditions affecting the manufacturing sector and might accelerate job losses."

Manufacturers' organisation the EEF also urged the bank to continue to keep rates on hold.

EEF chief economist Steve Radley said: "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."

TUC senior economist Ian Brinkley said: "With historically low interest rates, improving profitability and a recovery in world export markets, there is no excuse for business to delay investment.

"Failure to seize the opportunity will put British manufacturing firms at a competitive disadvantage against their overseas competitors."