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Rate hold gloomily greeted

Published 5 Sep 2008
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UK interest rates were today held at 5% by the Bank of England for the fifth consecutive month.

Although analysts had expected the base rate to remain unchanged this month, many economists expect rates to fall soon despite inflation worries. The threat of inflation, which has risen sharply to 4.4% in recent months, has deterred members of the Bank of England's Monetary Policy Committee from cutting interest rates.

However falls in house prices have affected confidence and the economy ground to a halt in the second quarter, leading to realistic fears of a recession, as voiced by the Organisation for Economic Cooperation and Development (OECD) on Tuesday.

Richard Bottomley, president of the North East Chamber of Commerce (NECC), said: "Alistair Darling painted a bleak picture of the economy over the weekend, one that NECC believes is more negative than the reality on the ground.

"However, it does highlight the need for the MPC to help stimulate the economy in the near future. With inflation still on the rise, it was unlikely that a cut was on the cards this month but we will be looking for a sharp cut in rates in the near future after inflation has stabilised.

"If the economy is in as dark a place as the Chancellor suggests then businesses really want to see action taken to restore confidence and to stimulate economic activity."

Liz Smith, Assistant Regional Director, said: "The bank has decided not to cut rates despite the growing weakness of the economy. It clearly remains concerned about inflation, which is likely to rise to just over five per cent in coming months. But as the autumn unfolds, the chances of a rate cut will increase, as the slowdown improves the inflation outlook for next year."

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