Interest rates on hold at 4.5%

The Bank of England froze interest rates at 4.5% today, keeping the core rate unchanged for a fourth successive month.

Members of the Bank's monetary policy committee (MPC) had not been expected to give shoppers an early Christmas present by cutting the cost of borrowing.

Analysts predict that the bank will wait to see retail figures from the festive period and study employment, economic growth and inflation before deciding on any movement some time next year.

MPC members are being especially cautious because of the threat of higher inflation, and the committee will watch to see if this is affected by staff negotiating better pay deals in the January wages round.

Inflation fell back to 2.3% in October but MPC member Charles Bean has publicly expressed his fear that it could rebound, commenting that companies "can't keep squeezing profit margins indefinitely".

The Bank predicted in its last inflation report that it would remain close to its 2% target over the next two years or so, but this assumes rising oil prices will have no effect on UK wages.

In this week's pre-budget report, the chancellor, Gordon Brown, cut his 2005 economic growth forecast to 1.75%, down from the previous target of 3% to 3.5%, blaming inflationary pressures caused by the rise in global oil prices.

Mr Bean's MPC colleagues David Walton and Kate Barker voted for an interest rate cut in August when it was reduced from 4.75% to 4.5%.

However, they told the House of Commons Treasury Select Committee last month that the decision in August should not be taken as a signal of more reductions to come.

Economists noted that energy prices remain high and there are signs that the housing market is flickering back to life.

Tamara Henderson of Action Economics said economic growth was no longer as big a concern as it was for the MPC this summer and inflation was again their top concern.

Other analysts said the MPC is likely to see Christmas spending as a test of how quickly consumer confidence can recover.

Mixed signals have emerged from the high street in recent surveys, with the CBI claiming that retail sales fell at their fastest rate for at least 22 years in November.

The British Retail Consortium (BRC) offered a different view, saying that like-for-like sales were up 0.8% on 12 months ago after the recent cold snap set tills ringing at clothes shops.

Figures published by the Nationwide building society showed that consumer confidence rose by 9 points last month - its biggest jump since its index was launched in May last year.