Interest rates held at 4.5%

The Bank of England today stuck to its wait-and-see approach as it kept interest rates unchanged at 4.5% for the fifth month running.

With retail sales holding up over the Christmas period and with the Bank waiting to see the outcome of the January pay round, today's decision by the Bank's monetary policy committee (MPC) was pretty much a foregone conclusions.

All 45 analysts polled by Reuters last week had predicted that the MPC would keep rates unchanged.

Official data released today showing that manufacturing output grew at its fastest pace in seven months in November last year, only reinforced the case for a steady-as-she-goes policy.

The Office for National Statistics (ONS) said that factory output rose 0.4% in November after a fall of 0.8% in October. The rise, in line with City forecasts, followed three months of declines.

On the retail front, the feared Christmas downturn has not materialised. Big high street names such as Marks & Spencer, J Sainsbury, John Lewis and photography shop Jessops have all reported strong sales, indicating that consumer spending is holding up.

Meanwhile, house prices have been firming up, although house price growth is expected to be at its lowest for 10 years, according to the Halifax bank.

As a result, analysts have pushed pack their forecasts for a cut in borrowing costs. Towards the end of last year, several experts were predicting a cut in February. That has now been pushed back to March.

Many analysts are banking on at least one rate cut this year - on top last August's quarter-point move - on the grounds that the MPC's forecast of 2.5% economic growth this year is too optimistic. Most forecasters are predicting growth of below 2%, which would ease inflationary pressures and give scope for the Bank to lower borrowing costs.

Consumer price inflation rose quickly last year on the back of soaring oil prices, peaking at an annual rate of 2.5% in September. But inflation has fallen back quickly - 2.1% in November - and is expected to drop to the Bank's 2% target in December.

Howard Archer of Global Insight points to the weakness of the industrial sector that will act as a significant drag on overall growth.

"The continuing struggles of the manufacturing sector reinforce our belief that UK growth will remain modestly below trend for some time to come, notwithstanding December's robust service sector activity and healthier retail sales," Mr Archer said. "Consequently, we still believe there is a strong chance that interest rates will be trimmed by 25 basis points around March."

In the December meeting, one MPC member, Stephen Nickell, voted for a rate cut as he thought that the Bank's projections on investment growth and trade as being overoptimistic.

Other members fuelled rate cut expectations by saying at the time that risks to the Bank's growth forecast were weighted to the downside.