Interest rates held at 4%

The Bank of England today refrained from another cut in interest rates in the face of buoyant consumer spending and unexpectedly firm house prices.

The Bank's monetary policy committee (MPC) left the cost of borrowing at 4%, the lowest for 40 years, after having cut rates seven times already this year in an aggressive campaign to keep recession at bay.

"This decision is no surprise," said Ian McCafferty, chief economic adviser of the Confederation of British Industry. "Last month's half-point cut was the latest in a series of aggressive rate cuts and it will be difficult to gauge long-term trends until after the Christmas period."

Just before the bank announced its decision, a key survey showed that the decline of Britain's dominant services sector may have reached bottom in November.

The report, compiled by the Chartered Institute of Purchasing and Supply (CIPS), showed that the services sector business activity index rose to 47.3 in November from 46.3 in October, its first rise since June.

On the CIPS scale, which measures orders, prices charged and employment, a figure below 50 indicates declining economic activity, while a number above 50 shows growth.

The MPC pays close attention to the CIPS survey. Last month's surprise half-point rate cut came just three days after the October services business activity index plunged to its lowest level since the survey started in July 1996.

That sparked aroused fears that a recession in the manufacturing sector had spread to the rest of the economy.

Despite the slight improvement in the headline number, the report contained bleak news.

On employment, the index showed a contraction for a second month running and only the fifth time in the survey's history.

The employment index fell to 47.3, the lowest since the survey began, from October's 48.3. The hotel and restaurants sector was worst hit, closely followed by the financial sector.

Against this, consumers show little sign of curtailing spending, while house prices have firmed up after a recent blip.

Nationwide, the UK's biggest mortgage lender, yesterday reported that house prices unexpectedly resumed their climb in November after a slight dip in October.

That followed a closely-watched survey from the British Retail Consortium showing that retail sales grew by a robust 5.8% between October and November.

In another indication of hardy consumer spending, the Credit Card Research Group predicts that consumers will rack up credit card bills by a record ?19bn this month, 14% up on last year amid predictions of a bumper Christmas.

But retail consultant Verdict, predicts that 2002 will be one of the most challenging years for retailers as the impact of recent job losses sink in and curtails spending. City analysts believe that the bank will have to cut rates again next year.