Bank unanimous on freezing interest rates

An early cut in interest rates today appeared unlikely when Bank of England minutes showed monetary policy committee members had not discussed the option at their January meeting.

Minutes from the January 12-13 meeting of the MPC revealed all nine members had voted to keep rates at 4.75%. It was the fifth month in a row that the Bank had kept borrowing costs unchanged.

In contrast to the December meeting, there was no discussion of the case for a cut in the cost of borrowing after figures showed inflation had picked up a "little more rapidly than expected" since November.

The December minutes created a flurry of excitement in the markets, because the Bank's policymakers had raised the possibility of a cut in borrowing costs. Some analysts predicted that the next rates move would be downwards amid worries that the housing market was slowing down too fast. Today's minutes, however, quashed that idea.

"The most significant aspect of the minutes is that December's reference to the case for an interest rate cut has disappeared," Howard Archer, the chief UK economist at the consultancy Global Insight, said. "Indeed, the overall tone of the minutes and the unanimous vote reinforce our view that interest rates are set to unchanged for several months to come."

Mr Archer said the Bank remained somewhat uncertain over the state of the economy, the depth of the housing market slowdown and future inflationary developments, and had the scope to wait and see for an extended period.

In today's minutes, the MPC said it saw no "clear evidence of a significant change in the pace of consumption growth ... despite some initial downbeat press comments about the weakness of retail sales over the Christmas period".

Official figures last week showed a 1% drop in retail sales over the festive period, a fall that caught analysts by surprise. To pre-empt any sense of alarm, however, the Bank's governor, Mervyn King, said not too much should be read into one month's figures.

Inflationary pressures building up at the wholesale level and from a tight labour market are of more concern to the Bank.

Consumer price inflation rose unexpectedly to 1.6% in December - although it remains well below the government's 2% target - while the number of people in work reached 28.49 million in the three months to November, the highest level since comparable records began in 1971.

The minutes said there was not "any evidence to suggest that the main risks identified at the time of the November inflation report were materialising - with the possible exception of slightly weaker world activity that had been identified in the December minutes," the report said.

Meanwhile, the Office for National Statistics reported that the economy had grown by 0.7% in the fourth quarter of 2004 compared with the previous quarter.

The ONS estimated that, for the full year, the economy had grown by 3.1%, in line with Bank and Treasury forecasts. It was the UK economy's strongest showing since 2000, and well ahead of the 2.2% recorded in 2003.