Bank holds rates steady for seventh month

The Bank of England today held interest rates at 4.5% for the seventh month running, after a rise in house prices and other signs of economic strength.

There was encouraging news from the long-suffering industrial sector shortly before the Bank's decision was announced.

According to the Office for National Statistics (ONS), British industrial output rose for the third month running - the longest period of expansion in nearly four years.

The ONS said industrial output rose by 0.4% in January, exceeding analysts' expectations of a rise of 0.2%.

In other positive news, the trade deficit narrowed in January to £5.7bn from £6.1bn the previous month, with a 16.2% year-on-year increase in exports to the eurozone.

Stronger eurozone growth should benefit UK exporters and boost overall growth.

All this follows other signs of economic vigour. The service sector expanded at its strongest pace in nearly two years in February, a recent survey showed, while the Halifax house price index jumped 1.4% last month, pointing to a revival in prices.

With the housing market strengthening, the MPC will certainly be in no hurry to take action that would further stimulate prices for residential real estate.

Moreover, while the British Retail Consortium survey of retail sales in February was weak, it was certainly not feeble enough to cause concern at the Bank.

In any case, the Bank has made it clear that it is in no hurry to lower rates.

In its inflation report last month, the Bank predicted a pick-up in economic growth close to its long-term trend and inflation near its 2% target.

The Bank's monetary policy committee (MPC) remains preoccupied with the possible impact of higher energy prices.

Mervyn King, the Bank's governor, is concerned that higher oil and gas prices could eventually feed through to higher pay claims.

In the past three meetings, the vote has been eight to one for holding rates, with Stephen Nickell, whose term ends in May, the lone dissenter.

Given the recent data and the signals from the Bank, most analysts have pushed back their predictions for a May cut.

Howard Archer of Global Insight said economic growth would be weaker than the Bank anticipates.

He also expected consumer price inflation to be limited by modest wage claims and intense competition on the high street.

"Consequently, we believe that the Bank of England could yet cut interest rates in May, although a move in the third quarter is increasingly looking more likely," he said.