Bank holds rates steady for sixth month in a row

The Bank of England left interest rates on hold for the sixth month in a row yesterday, but City analysts said it was too soon to conclude that borrowing costs had peaked after new figures showed the service sector grew robustly last month.

The decision to keep rates at 6% was greeted with widespread relief from industry and union groups.

"This will help soothe fears that manufacturing could slip back into a downturn," said Kate Barker, chief economist at the Confederation of British Industry.

"But companies across the economy will need longer term respite as they struggle to compete in tough foreign markets."

Manufacturing representatives blame high borrowing costs for forcing up the pound and pricing British exports out of foreign markets.

"We are pleased the MPC has listened to industry rather than the alarmist voices in the City," said Brendan Barber, deputy general secretary of the Trades Union Congress. "The MPC's decision is both responsible and realistic."

European firms and homeowners were also spared a rise in borrowing costs after the European Central Bank left rates unchanged yesterday at 4.25%.

Although a majority of analysts were expecting British rates to be held steady, conflicting signals about the direction of the economy made the outcome of yesterday's meeting particularly hard to call.

Since the Bank's monetary policy committee last met, official figures revealed robust growth in the second quarter of the year, and lower unemployment. But wage inflation has moderated and the housing market appears to be cooling down.

The latest snapshot of the services sector, released just ahead of the MPC's decision yesterday showed a further strong expansion.

The business activity index rose to 58 in July, according to the Chartered Institute of Purchasing and Supply. Readings above 50 indicate the sector is expanding and analysts said yesterday's figures was consistent with a quarterly growth rate of about 1%.