Interest rates expected to stay at 4.75%

The Bank of England is expected to announce today that interest rates have been kept on hold for the 10th month running.

The base rate has stood at 4.75% since August 2004, when it was raised from 4.50%.

Despite speculation earlier in the year that it would increase before the end of 2005, recent economic indicators have suggested that previous rises have had the desired effect, slowing down consumer borrowing and the housing market.

Nationwide building society said yesterday that there was a 90% probability rates would remain on hold today.

"Last month, the MPC voted 8-1 to maintain interest rates at 4.75%. Following relatively negative data over the past month, the base rate is unlikely to change tomorrow."

Howard Archer, chief UK economist at consultancy Global Insight, said he was certain that the monetary policy committee would leave rates unchanged, and that the next move was likely to be downward.

"We now expect an interest rate cut to occur this autumn (we have pencilled in October), while some analysts believe it could happen as soon as August," he said.

"It will be very interesting to see if there is any discussion of the case for an interest rate cut in the minutes of this week's meeting, and whether the MPC are becoming more pessimistic about the growth outlook."

He added: "Although we do not expect consumer spending to see a sharp retrenchment, it nevertheless seems likely to remain relatively subdued for an extended period.

This reflects higher debt levels, the slowdown in the housing market, and growing fears about tax increases next year."

Looking forward, Mr Archer said he expected rates to end the year at 4.50%, and fall to 4.00% by the middle of next year.

Trevor Williams, chief economist at Lloyds TSB Financial Markets, said the outlook for consumer spending growth remains "one of the key uncertainties" facing the Bank as it aims to meet its 2% inflation target.

"It is not surprising that financial markets are currently pricing in a cut in interest rates before the end of this year," he said.

Onc group that would like to see a reduction in rates, sooner rather that later, is the Trades Union Congress (TUC).

Calling for the MPC to consider a cut, TUC chief economist Ian Brinkley said: "Inflation remains firmly under control but there is a growing danger that the economy will underperform on growth and jobs.

"There is no sign investment and exports are taking up the economic slack left by consumption slowing to a more sustainable rate.

"A quarter point cut now would be prudent and consistent with the Bank's remit to support growth once the inflation target has been met".

The Bank's decision will be announced at 12pm today.