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Bank of England keeps interest rate of 4.50 percent
Cat : Poverty and Debts
Date : 2006-04-07 15:38:03                      Reader : 300
Associated France Press 7/4/2006
Bank of England keeps interest rate of 4.50 percent
LONDON (AFP) - The Bank of England has held its key interest rate at 4.50 percent for the eighth month in a row, opting against a cut despite data pointing to more subdued economic growth for Britain.
The BoE decision at the end of a two-day meeting on Thursday was widely predicted by economists and came shortly before the European Central Bank left eurozone borrowing costs at 2.50 percent. US rates stand at 4.75 percent.
As is customary when no change is made to the BoE "repo" rate -- the rate of interest at which the central bank lends to commercial banks -- its Monetary Policy Committee (MPC) gave no reason for its decision.
Central bank watchers must wait until April 19 for official comment, when minutes from the meeting are released.
While the ECB and US     Federal Reserve are expected to hike rates further over the coming months, the BoE could sit tight for the remainder of 2006, before deciding on a cut, Investec economist Philip Shaw said.
"Unless the economy veers sharply from its present course one way or the other, base rates will remain at 4.5 for the rest of the year," he said Thursday.
Economist Audrey Childe-Freeman, of the Canadian Imperial Bank of Commerce, noted: "We may have to wait a few more months before the BoE contemplates cutting interest rates again."
Rates were last cut by a quarter-point in August 2005 from 4.75 percent, owing to subdued economic growth. The British economy grew by 1.8 percent last year, the slowest pace since 1992, according to official data.
Supporting calls for a further cut in British borrowing costs has been data this week revealing a weaker manufacturing sector.
British manufacturing production fell by 0.2 percent in February from January, dampening hopes for a solid improvement in economic growth in the first quarter of 2006, according to economists.
"The softness observed in some recent data should keep the policy debate skewed towards monetary policy easing, but it will take more weakness from the housing/consumer sectors to convince a majority of members to cut interest rates," Childe-Freeman added.
Meanwhile the MPC, which normally comprises nine members, was reduced to eight this month after senior member Richard Lambert left his post on March 23 ahead of becoming the new head of the Confederation of British Industry -- the country's biggest employers body -- on July 1.
The committee was under strength this month for the first time since September 2002, meaning that BoE governor Mervyn King would have had to cast a special vote in the event of a 4-4 split.
However, it was unlikely that King would have been called upon to use the option since at the four previous meetings policymakers had voted 8-1 to keep British borrowing costs on hold.
On each occasion, MPC member Stephen Nickell voted for a quarter-point reduction to 4.25 percent, arguing that inflation would fall below the Bank of England's 2.0-percent target once the effect of higher energy prices fell out of calculations.
British 12-month inflation rose to 2.0 percent in February, compared with 1.9 percent during the previous two months, according to official data.

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