Bank ties down interest rates for ninth month

The Bank of England's monetary policy committee left interest rates on hold for the ninth month yesterday, fuelling increasing City expectations that the cost of borrowing has peaked.

The decisions to peg rates at 6% was widely anticipated following a stream of data pointing to a slowdown in economic growth, and had no impact on the financial markets.

"We have long argued that rates would peak at 6%, but this does not mean that there is now a green light for rate reductions," said Roger Bootle, economic adviser to accountants Deloitte & Touche.

"The MPC will want to see what Mr Brown does in the Budget in March, and to assure itself that a plunge in the pound is not going to cause inflation to surge." In its assessment of the pre-Budget report, the Institute for Fiscal Studies said that after making concessions to motorists and pensioners, the chancellor had left himself little room for large scale pre-election tax cuts in March.

But it added that the Treasury's assumption about the economy's trend rate of growth could turn out to be wrong, giving the chancellor scope to announce a further modest fiscal loosening.

The MPC issued a reminder that next week's quarterly inflation report would provide a detailed explanation of its thinking on the outlook for inflation and interest rates.

Philip Shaw, economist at Investec, said he expected it would show a continued divergence of opinion between hawks and doves.