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Bank of England holds interest rates steady

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by Elaine Frei

Bank of England holds interest rates steady

The Monetary Policy Committee of the Bank of England voted on Thursday morning to leave interest rates unchanged at 5.25 percent, as had been expected by most analysts. Last month, in a surprise move, the Bank raised rates by 25 basis points after UK inflation had reached 3 percent in December. If inflation goes above 3 percent, the Bank’s governor is required to explain to Chancellor Gordon Brown why it has exceeded the Bank’s target on inflation.

Businesses and mortgage holders were pleased to see the Bank hold interest rates steady, but it could be a short pause. Analysts do not agree on when interest rates will rise again, but virtually all expect at least one more rate rise this year, to 5.5 percent. Others believe there will be more than one rate hike and that rates could go as high as 6 percent before the Bank is finished tightening the economy.

Inflation has been above the 2 percent target since May 2006, and December’s rise to 3 percent is as high as inflation has gone in a decade, and there have been three recent hikes in interest rates, in August and November of 2006 along with January’s increase.

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News posted: February 8, 2007

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