Interest rate unchanged at 5.25%

The cost of borrowing was today kept on hold by the Bank of England, despite pleas from industry for a further cut.

The Bank's monetary policy committee kept the cost of borrowing on hold at 5.25% when it announced its decision at midday.

City economists believe that the nine-strong committee fears another reduction would fuel inflationary pressures.

The underlying rate of inflation surged to 2.4% last month, close to the chancellor's 2.5% target.

Both the housing market and retail sales have remained buoyant despite the effects of the worldwide economic slowdown.

The European central bank (ECB) also left its key interest rate unchanged today. The ECB president, Wim Duisenberg, shattered hopes for a rate cut earlier this week, when he insisted that the current level is required to keep inflation in check.

Meanwhile, figures from the Confederation of British Industry (CBI) yesterday showed that retail sales volumes were "robust" last month, with more than half of retailers reporting improved figures.

The CBI said it is disappointed that the Bank of England "had missed an opportunity" to lessen the consequences of the worldwide economic slump.

The deputy director general, John Cridland, said: "We understand the dilemma facing the Bank of England, given that confidence remains high among consumers.

"But many sections of industry are coming under increasing pressure from the global slowdown and an interest rate cut now would have been timely in helping to mitigate its effects."

The Engineering Employers Federation, which this week said the engineering sector was effectively in recession, attacked the decision.

The federation's director general, Martin Temple, said he was extremely disappointed the MPC had not taken the same "bold, decisive action" as the Federal Reserve in the US, which cut US interest rates by a quarter point last week.

"With the global economy slowing at the second fastest rate ever, the UK cannot remain immune. Sooner or later the MPC will be forced to cut interest rates again," he said.

The no-change was of little surprise in the City, where analysts had forecast the Bank would fear a cut could fuel inflationary pressures.

Jeremy Hawkins, chief European economist at the Bank of America, said the "world and his wife" were predicting a no-change.

He added: "It's very much in line with market expectations.

"The problem is that the Bank of England is facing a two-speed economy and, depending on which statistics you look at, they should either be hiking rates or cutting them."

The news will disappoint homeowners. A quarter point cut by the MPC would have reduced mortgage repayments on a ?60,000 mortgage by ?9.22 a month, lowering them from ?395.80 to ?386.58.

Mortgage rates are currently at their lowest levels for around 40 years.

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