The Bank of England kept interest rates steady at 5.50 percent on Thursday, ending speculation it might cut for a second month running, but analysts remain convinced borrowing costs will come down next month.
While a majority of economists had predicted the Bank would hold fire this month, fears of a consumer-led slowdown had sparked a last-minute scramble to bet on a rate cut. The pound rose immediately after the decision while Britain''s index of leading shares turned negative with retailers taking a sharp knock.
"We suspect that the deteriorating growth outlook, particularly for the household sector, was balanced by worries on inflation," said James Knightley at ING Bank.
Bank policymakers have the difficult task of juggling the risk of a slowing economy with rising price pressures. Not only are food and energy costs soaring but the pound''s sharp fall on the foreign exchanges has raised the risk of higher import prices.
Sterling has plumbed a record low against the euro this week and has lost nearly 10 percent in trade-weighted terms over the past six months. "With money markets returning towards some semblance of normality and sterling weakening sharply the Monetary Policy Committee was never likely to opt for back-to-back rate cuts," said Andrew McLaughlin, chief economist at RBS Group.
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