Bank of England avoids rate hikes for September

The announcement ends weeks of speculation of further rate hikes, a move that many believe would have had a detrimental effect on the business community.

The decision was widely anticipated by analysts, who pointed to survey evidence that output is slowing in some industry sectors.

In recent months economists have been preoccupied with rising house prices and insatiable consumer spending.

However, five rate rises in eight months has led to a major slowdown in both these areas.

Andrij Halushka at the Centre of Economics and Business Research, said, "A month from the previous meeting made a lot of difference to the perception of the trajectory taken by the UK economy,"

The British Retail Consortium (BRC) says shop sales increased by a tiny 0.6% year-on-year in August. This was partly due to poor summer weather with added interest rates taking their toll on confidence.

Now businesses fear that slowing consumer demand will start to impact upon other parts of the economy, especially within the service sector - manufacturing output is still picking up after years of decline.

"This was the only decision that that the MPC could justifiably have made," said BRC chief Kevin Hawkins.
"The BRC has consistently said that there is no evidence of consumer-led inflationary pressure and therefore no justification for a rise in interest rates to curb spending."

However, despite no change in interest rates this month, the Institute of Directors (IoD), still believes future hikes are immanent due to rising oil prices and further acceleration in consumer spending.

“For some time the IoD has forecast that interest rates would rise to 4.75 per cent in 2004. This still remains our view. We have also forecast that interest rates will peak at 5 per cent in early 2005 and we see no reason to change that forecast in light of today’s announcement.”