Interest rate freeze continues
THE Bank of England today bowed to expectations and kept interest rates at 4% for the fifth month in a row, despite new evidence that the service sector is growing at the fastest pace for a year.
The decision by the Bank's monetary policy committee had been unanimously predicted by City economists. But it was seen as a temporary reprieve, with rates tipped to rise within months.
Several pundits say the MPC will pull the trigger next month when it has seen the contents of Chancellor Gordon Brown's Budget, which will be unveiled on 17 April. A May increase would also coincide with the Bank's latest quarterly inflation report.
Financial markets were unmoved by today's decision. The FTSE 100 index was down 38.30 at 5209.50 while sterling was steady at $1.4375.
Business leaders welcomed the news. The CBI's chief economist Ian McCafferty said: 'With inflation well under control and pay settlements slowing, the bank had no reason to rock the boat.'
Although it came as no surprise, today's rate decision is unlikely to have been clear-cut and the hawks on the MPC may have argued for higher rates. Buoyant consumer confidence has fuelled a boom in the housing market and on the High Street, and the service sector is picking up speed.
The latest snapshot of the sector by the Chartered Institute of Purchasing and Supply today showed business activity grew in March at its fastest pace for a year. The CIPS/Reuters survey's headline index registered 53.8 against 52.1 in February, where a figure above 50 represents expansion.
Firms are also optimistic about the future, with business confidence hitting a 16-month high.
AS the MPC concluded its meeting, Cantor Index issued its latest odds on who will succeed Sir Edward George as Governor of the Bank of England in 14 months. They are: Mervyn King, Deputy Governor 2/9; Sir Howard Davies, chairman FSA 4/1; David Clementi, Deputy Governor, Bank of England 16/1; Gus O'Donnell, Treasury economist 25/1; DeAnne Julius, ex-MPC 20/1; Rachel Lomax, DSS Permanent Secretary Pensions 50/1; Lord Browne, chairman BP 50/1; Martin Taylor, ex-Barclays chief executive 66/1; Gavyn Davies, chairman of the BBC 66/1.
