Bank keeps interest rates at 48-year low

The Bank of England today kept interest rates at their current 48-year low of 3.5% for the third month running, with the move coming amid conflicting signs over the state of the economy.

Last month, the Bank's monetary policy committee voted unanimously in favour of keeping the base rate on hold.

However, some committee members contemplated voting for an increase on the back of strong consumer spending growth and the continued accumulation of household debt.

The nine-member MPC last cut rates in July, at a time when Mervyn King had just taken over from Sir Edward George as governor. The MPC lowered the cost of borrowing following the initial growth figures for the second quarter, amid concern over the weakness of the global economy.

Since then, however, the Office for National Statistics has substantially revised those second quarter figures, saying that the UK economy grew by 0.6% instead of the 0.3% rate that had previously been estimated.

But the waters were muddied by data released this week which underlined the fragile nature of the recovery in the hard-hit manufacturing sector.

According to the ONS, manufacturing output dropped unexpectedly in August - the first monthly fall since March - due to lower production of cars and machinery.

Before today's decision, the TUC had expressed the hope that the MPC would leave rates alone.

"We expect and hope the Bank will keep rates on hold for the rest of the year," said Ian Brinkley, chief economist at the TUC.

"Consumption is moderating, but the production side of the economy has barely got into first gear. The last thing we need now is a premature rate hike when there is no sign of a threat to the inflation target from either the high street or the labour market."

All but one economist polled by Reuters thought that rates would stay the same today, but there are widespread expectations in the City that the cost of borrowing will go up, possibly before the end of the year.

"It is unlikely that the MPC will change the base rate before the next Inflation report is due in November, and may even wait to consider the impact of pre-Christmas sales first," said.
Andrij Halushka, economist with the Centre for Economics and Business and Research.