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BankruptcyNews
Junior Member
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 Posted - 07 June 2007 : 15:38:28
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UK interest rates remain at 5.5%
The Bank of England has held UK interest rates at 5.5% following its latest meeting, but analysts say a rate rise later this year remains likely.
The decision to freeze rates had been expected, to give the Bank time to assess the impact of recent rate rises.
UK rates have now been increased four times since August last year in an attempt to rein in inflation.
But with price growth still strong, many analysts expect a further rise to 5.75% before the end of the year.
Rate impact
Business groups welcomed the decision by the Bank's Monetary Policy Committee (MPC) to freeze rates.
"Whilst the door remains open for a further rise if necessary, today was not the day for tougher action," said EEF chief economist Steve Radley.
CBI chief economic adviser Ian McCafferty applauded the Bank for resisting "rushing into a rate rise that, though widely expected, may still prove unnecessary".
"Evidence is starting to emerge that the four rate rises since August are having an impact," he added.
Earlier this week, the latest survey from the British Retail Consortium recorded a drop in underlying sales during May, with recent rate rises being cited as one factor putting off shoppers.
Price pressures
However, although the Bank refrained from raising rates this month, many analysts think there is a very strong chance of rates hitting 5.75% in the near future to keep inflation under control.
While consumer price index (CPI) inflation fell from 3.1% to 2.8% in April, the measure still remains well above the government's target of 2%.
Recent economic releases have suggested business confidence is rising and have also indicated that companies are looking to raise prices.
In the housing market, while price growth has slowed, the annual rate is still hovering around the 10% mark.
A poll of analysts by the Reuters news agency earlier this week put the chances of rates hitting 5.75% this year at 80%, with a 30% chance they rise to 6%.
"The Bank of England's decision to leave interest rates unchanged may well prove to be only a temporary reprieve," said Howard Archer, chief UK and European economist at Global Insight.
"We suspect that another 25 basis point hike to 5.75% could arrive as soon as July."
James Knightley at ING said: "Interest rates are going higher and we suspect that they will get to 5.75% in July, based on the recent data flow and the hawkish tone to Bank of England comments."
The UK is not the only nation wrestling with the problems of inflation.
On Wednesday, the European Central Bank raised its main interest rate to 4% and also increased its inflation forecast for the eurozone this year to 2% from 1.8%.
Source: bbc.co.uk
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UK interest rates remain at five and a half
