Interest rates expected to hold

The Bank of England was today forecast to keep interest rates on hold at 4% for the third month running, in a move which will disappoint homeowners and recession-hit manufacturers.

Economists widely believe the interest rate-cutting cycle - which last year saw the cost of borrowing slashed by two percentage points - has come to an end. The City is now pencilling in rises for later in the year, when the global economy is expected to perk up.

There had been speculation that the Bank's nine-strong Monetary Policy Committee (MPC) could move to raise rates to calm consumer demand, amid worries that shoppers are overstretching themselves by taking on growing debts.

But on the other side of the coin is Britain's struggling manufacturing industry, hit by the strong pound and weak global demand.

Business leaders the CBI and the Engineering Employers Federation recently called for a cut in the cost of borrowing in order to prop up the sector and help prevent thousands of job cuts.

Roger Lyons, general secretary of the Amicus union, warned that 200,000 jobs will be lost by the end of the year unless action is taken to reduce pressure on the value of the pound.

But overall, economists expected rates to remain on hold.

John Butler, economist at HSBC, said: "We expect rates to remain unchanged. We believe rates have already troughed at 4% and expect no interest rate rise until the third quarter.
Consumers require little additional help, while globally there are increasing signs that a recovery is coming through."

Philip Shaw, economist at Investec bank, expected rates to stay on hold at 4% this time, and thinks they could rise to 5% by the year end. He said that, despite a benign inflation outlook, it had been suggested the MPC might accept inflation a little below target rather than risk widening the UK's already yawning economic imbalances.

The Bank of England will announce its decision at midday.

It last moved rates in November, when it took the dramatic step of cutting interest rates by 0.5% to boost the economy and stave off recession. That cut was the seventh made by the Bank last year, and brought rates to their lowest for nearly 40 years.