Bank keeps rates on hold as embattled euro sinks further

The Bank of England's key monetary policy committee kept interest rates on hold at 6% for the seventh month in a row yesterday, to the relief of industry and homeowners.

This is the longest period that the committee has left rates unchanged since it took charge of setting monetary policy more than three years ago.

Analysts said each month of no change increased the chances that the next move in interest rates would be downward.

"The decision re-enforces my long held view that rates have peaked," said Roger Bootle, economic adviser to Deloitte & Touche. "However, an early cut remains unlikely."

The move left the pound little changed against the euro but was used by currency traders as an excuse to drive sterling back towards seven-year lows around $1.4317 set earlier in the day amid broad-based dollar strength. The embattled single currency reached new lows against the greenback, losing more than a cent to drop to 86.35 cents, but rebounded to close in London back over 87 cents. It was steady against the pound.

Yesterday's decision by Threadneedle Street was welcomed by trade unions and industry leaders.

"Low inflation and steady growth justify the Bank's interest rate freeze," said Dr Ian Peters, the deputy director general of the British Chambers of Commerce. "The evidence suggests that the feared consumer boom is fading. Recent cooling in average earnings and the housing market is likely to reinforce the downward pressure on prices from tough competition."

John Monks, general secretary of the TUC, said that interest rates could be kept on hold until at least the end of this year. But, with the Bank committee having voted by the narrowest of margins to keep rates on hold last month, many analysts expect that voting at yesterday's meeting will prove to have been equally close.

"It was 5-4 last time and I would not be surprised if it was 5-4 this time again," said Mark Cliffe at ING Barings.