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BUSINESS NEWS: Interest rates held. By Dan Martin

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8th Jun 2006
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The Bank of England has followed expectations and kept interest rates on hold.

Announcing the results of its June meeting, rate-setters at the Monetary Policy Committee (MPC) said the cost of borrowing will remain at 4.5% for the tenth month in a row.

The action had been widely predicted by analysts after a mixture of recent positive and negative economic reports suggest the Bank will wait for more definite confirmation of how to act.

Earlier this week, the British Retail Consortium said high street sales rose in May driven by demand for World Cup-related products, while the Engineering Employers Federation found manufacturers experienced their strongest growth for a decade during the second quarter of this year.

However, there have been indications that the mini-revival in the UK housing market is cooling, while a rise in the strength of the pound indicates the manufacturing sector recovery may slow.

Most economists predict that due to concerns over rising inflation, the next move on rates will be up, possibly as early as August. The Bank's most recent inflation report warned its 2% inflation target could be surpassed if interest rates remain at 4.5%.

Last month, the MPC were split three ways over how to act. David Walton voted for a hike while Stephen Nickell pushed for a cut. The remaining members opted for keeping rates on hold.

Nickell has since been replaced by US academic David Blanchflower who has yet to indicate which path he intends to follow.

Ian McCafferty, Confederation of British Industry chief economic advisor, said: "The economy is recovering from the doldrums of last autumn, raising some fears of the prospect of a modest acceleration in inflation.

"So far, though, this is unproven, and any upward move in rates would have been premature. Leaving rates unchanged sends out a confidence-enhancing message of stability."

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