MercoPress. South Atlantic News Agency

Bank of England leaves interest rates on hold at 5%

United Kingdom interest rates have been kept on hold at 5% by the Bank of England following its latest meeting. The Thursday decision had been widely expected, despite calls from businesses groups to cut borrowing costs amid growing concerns about the economic slowdown.

A recent report suggested the UK was at risk of recession with building firms having laid off thousands of jobs. However, the Bank was not expected to cut rates with inflation currently at 3.3%, above the 2% target rate. The Bank's Monetary Policy Committee (MPC) has had to balance growing evidence of an economic slowdown against the problem of rising inflation. Analysts said MPC members were facing a tricky dilemma. "If the MPC reduces interest rates, it risks losing control of inflation" said Graeme Leach, chief economist at the Institute of Directors. "Conversely, if it increases interest rates it risks losing control of growth and could trigger a recession". But business groups said the Bank should be ready to cut rates swiftly if further signs of slowdown emerge. "If further gloom descends and the economic downturn gathers pace the Bank needs to be ready and willing to cut rates once again" said Lee Hopley, economist at the manufacturing body EEF. Meanwhile, Ray Boulger, of mortgage adviser John Charcol, said the MPC's decision was widely expected but the central bank was now under pressure to try to revive the economy. "With the economic news from nearly all sectors of the economy getting worse by the day, a rate cut is badly needed to help restore some confidence to consumers and reduce the financial pressure on both them and industry," he said. The Trades Union Congress (TUC) added to the voices calling for the MPC to combat the slowdown. "This was the wrong decision," said Adam Lent, head of economic and social affairs at the TUC. "The knock-on effects of the credit crunch and the rush of overly-gloomy headlines are already threatening an over-reaction and deeper down-turn than the actual economic news suggests". Earlier on Thursday, a report from accounting firm PricewaterhouseCoopers said higher living costs would mean that the consumer squeeze will worsen in 2009 and dent economic growth. It predicted that the UK economy would grow by 1.75% this year, down from 3.1% in 2007. Among the growing signs of a slowdown in the UK economy are: The UK's biggest mortgage lender the Halifax suggesting house prices were 6.1% lower in June than a year ago: Recruitment firm Hays warning that wider global economic issues were starting to affect the UK permanent job market; a report from the British Chambers of Commerce warning of a serious risk of recession in the UK within months At MPC meeting in June they discussed the possibility of raising rates to try to dampen inflation, although none of the committee's nine members voted for this option. (BBC).