Bank leaves interest rates at 4%

The Bank of England's monetary policy committee (MPC) today left interest rates unchanged at 4% for the fourth month running.

The Bank of England governor, Sir Edward George, last week signalled that the Bank was in no hurry to raise the costs of borrowing rates until there were firmer signs of a pickup in economic activity.

The UK economy ground to a halt in the fourth quarter, but Britain's battered manufacturing sector is at last showing signs of recovery.

After a year-long recession, manufacturers have bounced back by notching up the strongest rise in output for nearly two years in February, official figures showed last week.

Meanwhile, the housing sector remains as buoyant as ever. A key survey of the housing market from the Halifax bank today showed house prices jumped 1.5% in February from January to stand 16.9% higher than a year earlier, the strongest annual rate for nearly 13 years.

With signs of economic activity picking up, City analysts are confident that the next interest rate move will be up. The only question is when and by how much. The consensus is that rates will hit 5% by the end of the year, with some economists expecting a rise as early as May.

Given widespread expectations of revived growth in the US and the eurozone, the unions will almost certainly be disappointed in their calls for lower rates. The Trades Union Congress (TUC) again urged the MPC to cut rates again from their current 38-year low.

"We know the Bank tends to be conservative when economic indicators 'disco dance' but they have undershot their inflation target persistently since 1998 and current forecasts suggest that they will continue to do so until the end of 2003," the TUC general secretary, John Monks, said. "There is no significant inflationary pressure coming from the high street, the labour market or from abroad."

The Bank of England cut interest rates seven times last year to cushion the effects of the global downturn. But the Bank will have noted that inflation surged above the government's 2.5% target in January and it remains concerned at strong consumer demand and the build-up of personal debt.