Steady as it goes

Those City doomsters predicting that interest rates would go up today and continue rising to 7% or more by the end of the year were firmly put in their place when the Bank of England decided to leave the cost of borrowing on hold at 6%.

The fact that the Bank's nine-strong monetary policy committee (MPC) has left interest rates unchanged for the past three months suggests that it believes enough has been done for the time being to ensure that the government meets its 2.5% inflation target, and that further increases would only serve to push up the value of the pound, thereby inflicting further damage on exporters.

Although it is clear that there is a faction on the MPC that believes rates need to be higher to cool down the parts of the economy - primarily in the south of England - that are growing rapidly, the Bank's decision is the right one. The four increases in interest rates since last September, coupled with the steady rise in the value of sterling, have already started to have an effect on the economy, with the rate of growth halving to 0.4% in the first three months of this year, house price inflation coming off the boil and consumer confidence falling back. Quite rightly, the Bank would have been accused of overkill had it pushed up rates today.

So does this mean that rates have peaked? Not necessarily. The hawks on the MPC believe that the low level of unemployment - the number of people out of work and claiming benefit is at a 20-year low - is stimulating demands for higher wages and that this will eventually push up inflation. If they are right, there is still the risk of increases in interest rates over the coming months, but borrowing costs are definitely close to their peak. Indeed, there is a good a chance that the next move in interest rates will be down. As far as manufacturers are concerned, that will be welcome news. For those thinking of buying a house, the message is to think long and hard before locking yourself into a fixed-rate mortgage.