Bank staves off interest rate rise

The City warned industry and homeowners last night that they had only been granted a temporary reprieve after the Bank of England left interest rates on hold at 4.5%.

Although the Bank's nine-member monetary policy committee decided against a third successive rise in the cost of borrowing, analysts believe a fifth upward move since November is in prospect next month.

"After hiking in both May and June, a third consecutive month would have looked overly aggressive," said Jonathan Loynes, an economist at Capital Economics. "No doubt the MPC felt that it was time to pause and gauge the impact of the hikes already made."

Recent data from mortgage lenders and construction companies suggests that the housing market is coming off the boil in response to the Bank's four rate rises since November. Warnings by the governor of the Bank of England, Mervyn King, of a possible sharp fall in prices is also thought to have hit sentiment.

"Anecdotal evidence points to first-time buyers delisting from estate agents, leaving this important area of the market vulnerable," said Simon Rubinsohn, an economist at the broker Gerrard. "That said, it is far from clear that a more positive trend in house prices won't resume in the autumn."

Data over the past month has shown that Britain's economy is steaming ahead. The National Institute for Economic and Social Research, a thinktank, said earlier this week that annualised GDP growth may have accelerated to 4%, above the sustainable rate of growth of 2.5%-3%.

"This, alongside the tight labour market, strongly suggests that policy will be tightened further over the balance of the year," said Mr Rubinsohn.

The authorities are now likely to stick to raising rates gradually with the next increase in the cost of borrowing expected in August when the latest inflation report will be published.

The decision to leave rates at 4.5% was welcomed by the manufacturing sector.

"We are pleased the Bank has decided to hold this month," said David Frost, director general of the British Chambers of Commerce.