Interest rate held but Bank predicts rise

THE CITY reacted with relief yesterday as the Bank of England dispelled fears of an imminent interest rate rise.

But the Bank still believes rates must rise if the Government is to hit its inflation target.

The Bank's quarterly Inflation Report suggests that base rates would end the year up from their current 5.25 per cent to 6.5 per cent. Geoffrey Dicks of NatWest Markets said: 'The Bank is suggesting that rates will rise, but not by much and not just yet.'

The stock market had its best day since November's Budget, with the FT- SE index of 100 leading London shares rising by 60.1 points to end the day at 3157.5.

And figures published yesterday by Britain's two biggest building societies show that house prices rose last month. The Halifax index rose 0.2 per cent in July and Nationwide's index rose 1.8 per cent. Both societies agree that average house prices have climbed 3-4 per cent in 1994.

Reports, page 25