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Rates left on hold

The Bank of England has left interest rates on hold at 5.75 per cent, despite the release of weak economic data this week. Economists had said that the emergence of figures showing a slump in manufacturing production and retail sales meant that a rate cut could be on the cards, with monetary policymakers under growing pressure to take action to reduce the risk of a sharp economic downturn. There are increasing fears that the economy is starting to be hit by past interest rate rises, with the benchmark cost of borrowing currently at a six-year high. Meanwhile the ongoing global credit crunch, prompted by rising default levels in the US sub-prime mortgage market, has heightened concerns that the UK economy could be set for a slowdown. Analysts say the situation has been further exacerbated by soaring oil prices, the strong pound and slowing growth in key export markets, while news that the credit crunch has led to losses at major banks such as Citigroup and Merrill Lynch has led to increasing unease about the health of the financial sector. However at noon today the Bank of England confirmed that it had opted to leave the benchmark rate of borrowing at its current level.It will not become clear whether any members of the Bank of England's monetary policy committee (MPC) voted for a rate cut until the minutes of their latest meeting are published on November 21st. David Blanchflower was the only committee member to make the case for a rate cut to boost the economy ahead of October's interest rate decision. However fellow members Kate Barker and Charles Bean both recently indicated that an interest rate drop was unlikely this month, with figures prior to this week having suggested that the economy still appeared to be withstanding the impact of the global credit squeeze. Although today's vote may have been tight, some economists had predicted that the MPC would reject calls for a rate cut in order to remain focussed on the goal of keeping inflation in check. Commenting ahead of today's decision Global Insight chief economist Howard Archer said: "The Bank of England has stressed in the past that it will not be unduly influenced by one month's data. "Furthermore, the central bank is keen to see some slowdown in growth in order to dilute still significant inflationary pressures," he added. Nonetheless some economists are predicting a rate cut early next year, amid a predicted economic downturn.

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