Interest rate remains at 5%

Interest rates in the UK will stay at 5% following the latest meeting of the Bank of England.

It was expected that interest rates would remain stable. The past four months have seen two rate rises. The Bank’s Monetary Policy Committee, which sets interest rates, is considering the impact these past rises have had on inflation.

The Committee voted 7-2 in favour of increasing interest rates to 5% in November. This is the highest level since 2001.

There is little need to raise the UK base rate any time soon, according to the Bank of England’s most recent Inflation report. The strength of the pound against the dollar has been seen as another reason for the Bank to keep rates at their current level.

The decision has been described as predictable by manufacturing representatives. Steve Radley, chief economist for the Engineering Employers Federation, also said interest rates should remain at 5% into 2007.

He said: "The last two increases have bought the Bank some time which it should use to assess the direction of the economy in the New Year."

Some economists are expecting rates will increase by a further quarter point to 5.25% early in 2007.

The housing market in Britain remains robust. However, a slow down in consumer spending could influence the Committee’s decision.

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