Bank pegs rates at 4.75% while waiting for clearer signals

The Bank of England yesterday left interest rates unchanged at 4.75% for the seventh consecutive month amid conflicting data on the economy.

The Bank has hinted recently that it may increase the cost of borrowing at some point to keep inflation and wage deals under control but said it wanted clearer economic data first. City economists expected the monetary policy committee to keep interest rates unchanged this month but think it will nudge them up in the next few months.

Minutes of last month's MPC meeting showed one member, Paul Tucker, had voted for a rate rise. This broke the run of five meetings when the committee voted unanimously to keep rates unchanged.

The Bank started to raise rates from 3.5% in November 2003 until last August, when the cost of borrowing reached 4.75%. Since then, the housing market and consumer spending have slowed, but wage deals and inflation are showing signs of picking up.

Some City economists think the next rate move may be downwards, rather than upwards, as the heat goes out of the consumer boom - retail sales are weakening, car sales have fallen sharply and the housing market is cooling.

"I do not think that another interest rate hike is a done deal and it is still possible the next move in interest rates will be down," said Roger Bootle of Capital Economics.

"Last month, the MPC stated the key downside risk to the economy was the threat of a sharper slowdown in the housing market and housing spending. If anything, the data released over the last month have underlined this threat, or perhaps even exacerbated it."

Industry leaders were pleased with the Bank's decision. Ian McCafferty, the CBI's chief economist, said: "Business will be relieved that the MPC has gone for stability rather than risk jumping the gun on a rate rise."

David Frost, director general of the British Chambers of Commerce said: "Given the underlying risks facing the business sector in general and manufacturing in particular, we urge the MPC to keep interest rates on hold for the time being."

Concerns over the tightening of the labour market increasing wage inflation are highlighted in the latest Incomes Data Services report. The median pay settlement has risen by 3.3% in the three months to January, from 3.2% in the last quarter of 2004.