UK interest rates on hold

The Bank of England will keep interest rates at 5.25%, it announced this afternoon.

The decision to keep rates on hold was widely anticipated, with 32 out of 33 economists polled by Reuters last week saying that they expected the Bank's Monetary Policy Committee (MPC) to keep rates as they are.

Following the last rate cut last month, many people expected the MPC to hold rates this time round for political reasons. With the election only a day away, any move by the Bank - despite its independence - could have been viewed as politically motivated.

However, in recent weeks, a host of economic data has suggested that a further rate cut was not needed. Consumer confidence is strong - spending in Britain's high streets rose at its sharpest rate for five years last month - and unemployment is low, which suggests that the downturn experienced by the US economy has not hit the UK yet.

The Bank of England has made three rate cuts this year already, from 6% in January to 5.25% last month. Interest rate cuts spell good news for borrowers as mortgage rates come down - and this usually happens instantaneously following a rate cut announcement.

However, savers will be breathing a sigh of relief at the latest decision. The series of interest rate cuts has meant that banks and building societies have slashed the interest being paid on savings accounts - in some case by substantially more than the rate cut. Savers are now struggling to find a home for their money that will offer a decent return.

Analysts remain less confident as to whether further rate cuts will happen later in the year than they were about today's decision.

"There was concern that further rate cuts would see inflation start to pick up," said Martin Ellis, chief economist at Halifax. "The consumer side of the economy suggested a cut was not necessary. Our house price index shows consumer confidence is strong as do borrowing figures and retail sales figures."

"We think now that we're near the bottom in terms of rate cuts, but that's there's further scope for another quarter per cent cut later in the year," he continued. "This will depend largely on developments in the global economy, and particularly in the US."