MercoPress. South Atlantic News Agency

Bank of England leaves rates unchanged at 4.5%

The Bank of England Monetary Policy Committee maintained Thursday its key interest rate at 4.5% for the seventh month in a row, continuing its wait-and-see policy on the British economy.

The decision came one week after the European Central bank hiked its key interest rate to a three-year high of 2.5% to keep inflation in check.

A steady inflation rate and signs of a gradual recovery in the housing market are believed to be behind the Bank o England decision to keep rates frozen. The last time rates were cut was in August 2005, when they fell 0.25%.

Central bank analysts must wait until March 22 for official comment, when minutes from the two-day deliberations are set for publication.

March remains the only month during which the BoE has never chosen to move interest rates. Economists believe proximity of the British government's annual budget is a strong reason for the decision. Chancellor of the Exchequer Gordon Brown is set to unveil his latest tax and spending plans also on March 22.

Analysts warned Thursday that the BoE could extend its wait-and-see approach for the next few months.

Expectations of a rate cut cooled last month after forecasts from the Bank said that inflation would be near to 2% over the next two years. British 12-month inflation was steady at 1.9% in January.

The BoE is tasked by British Prime Minister Tony Blair's ruling Labour government with keeping 12-month inflation close to 2.0-percent. The central bank was granted autonomy to set interest rates back in 1997.

"Last month's inflation report ... [was] about as strong an endorsement of steady rates as one is likely to see", said Investec analyst Philip Shaw. "The balance of news has turned around significantly over the past month and we now expect rates to remain on hold at 4.5% for the remainder of the year".

However the British Chambers of Commerce (BCC) was disappointed by the decision.

"Today's MPC decision to leave interest rates unchanged at 4.5% was widely expected by the financial markets," said BCC director general David Frost. "While we are not surprised, we are disappointed that the MPC felt unable to take action to counter the underlying weaknesses of the economy".

After unanimously voting to keep rates steady during September, October and November last year, BoE policymakers voted 8-1 in favour of freezing interest rates at the current level in December, January and February.

The British economy grew by 1.8%, the slowest annual pace since 1992, recent official data showed, compared with 3.2% in 2004. Meanwhile, GDP growth rose by 0.6% percent during the fourth quarter of 2005 from the previous three-month period.