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The Bank of England's Monetary Policy Committee held interest rates at 5.75 per cent, defying calls from groups such as retailers for a base rate cut. There was no accompanying statement explaining the decision, though the bank will publish minutes of the MPC's meeting later this month.
The widespread assumption in London's financial district is that the bank may move to cut rates at the next MPC meeting in November, to coincide with the Bank of England's inflation report, or in early 2008. The European Central Bank also voted to leave its rates unchanged.
The hold was welcomed in many quarters. "Presumably at this stage, the MPC has little to add to September's comment on monitoring credit conditions," said Philip Shaw of Investec.
"We remain concerned over the effects of current financial conditions on the economy. For example, one and two-week Libor spiked up and interbank markets are still not working normally. We note too that the bank's own data show that the price of loans to non-financial corporates rose noticeably in August.
"Our view continues to be that the MPC will bring the bank rate down by 25 basis points next month and that a further easing will follow in the first quarter of next year."
Graeme Leach, chief economist at the Institute of Directors, said: "The MPC was right to hold its nerve. It is still too soon to judge the wider economic fallout from the financial crisis. There is every reason to believe the UK economy is slowing, but there is far less certainty as to whether the slowdown is sufficient to dispel inflationary risks."
The decision was announced as Halifax Bank said UK house prices had fallen 0.6 per cent last month, though annual growth remains in double digits.
Roger Bootle, economic adviser to Deloitte, added: "While a near-term cut is certainly possible, I doubt that the MPC is in a rush to reduce rates, which may not start to fall until next year."
Economists had expected the European rate to stay on hold due to uncertainty about how growth in the 13-nation eurozone will suffer from the strong euro, as well as credit market turmoil, which has pushed up the market rates commercial banks must pay for funds.
- Independent
