Bank of England urged to keep interest rates on hold

Interest rates look set to stay on hold this month, as business leaders urge the Bank of England to consider weakening economic data.

10:54 06 December 2004

Interest rates look set to stay on hold this month, as business leaders urge the Bank of England to consider weakening economic data.

Since November last year, the Bank of England's interest rate setting Monetary Policy Committee has increased the cost of borrowing five times from 3.5 to 4.75 per cent.

However, since August rates have been held at their current level.

Over that time the booming property market has ground almost to a halt and oil prices have hit record highs.

The CBI has now said given these factors interest rates should be frozen until consumer confidence returns.

It has been joined in its calls by the Engineering Employers Federation (EEF), which reports that confidence among manufacturing companies has dropped sharply.

"The coming three months are expected to see a cooling of activity [in the service sector] but firms will be hoping that Christmas spending exceeds their expectations. Interest rates must be held until confidence returns to the economy," said Ian McCafferty, the CBI's chief economic adviser.

EEF chief economist Steve Radley went further, suggesting a rate cut might be needed: "The Bank of England should leave rates on hold until well into the New Year and, if the current dip in confidence translates into a renewed manufacturing downturn, respond by cutting rates."

The Monetary Policy Committee increases and decreases the cost of borrowing in the UK with the goal of holding inflation to its target rate of two per cent. Current figures for inflation suggest that it is holding firm at 1.2 per cent.

The Bank will announce on Thursday whether it has decided to raise, lower or hold interest rates for December.