MPC likely to freeze interest rates for winter

Interest rates look likely to remain at 4.5% for the foreseeable future while inflation remains above its 2% target, the Bank of England signalled yesterday. Minutes of the latest interest rate meeting of the Bank's monetary policy committee showed a unanimous vote for steady borrowing costs while the newest member of the MPC, former Goldman Sachs economist David Walton, said interest rates would be left unchanged until a clearer picture emerged in the new year.

The MPC cut interest rates by a quarter point in August in response to a slowdown in consumer spending but since then inflation has risen to above its target. "That means a steady course for interest rates at the moment," Mr Walton told BBC Radio Ulster. "We will be watching wage settlements over the winter months to ensure that there is no pick-up in wage inflation."

The chancellor, Gordon Brown, wrote to pay review bodies yesterday urging them to keep a lid on public sector pay. Core inflation, excluding oil prices, at below 2% should be used as the benchmark for deals rather than the overall retail price index of about 2.5%. He is concerned that wage rises are fuelling service sector inflation while goods prices are static or falling. Mr Walton said there had been encouraging signs of a pick-up in the economy but a sharp surge in consumer spending was neither expected nor desirable.

The consumer is likely to remain squeezed this winter as spot gas prices have jumped in the past week on fears of shortages in the event of a cold winter.

Curry's and Dixons reported tough trading conditions yesterday while a survey from Deloitte predicted spending this Christmas could be lower than the previous year for the first time in 10 years.