BoE keeps Interest Rate steady at 5.75%

The Bank of England kept official interest rates unmoved at 5.75 percent on Thursday, amid much speculation. It is the third time in a row that the rate has been kept stable, after raising them five times over the past year to counteract rising inflation and a strong housing market.

The bank is expected to cut the rate later this year as the credit crisis in global markets is likely to hit the economy. The Bank had said it is too early to assess the full impact of the credit crunch although it acknowledged that it can possibly hit economic growth and inflation.

According to Analysts the central bank is seeking more time to judge the brunt of the credit squeeze on consumer and economic confidence.

"Given significant upside risks to the medium-term inflation outlook, we suspect that the Bank will only trim interest rates before the end of 2007 if it becomes clear that growth is taking a major hit, thereby diluting underling inflationary pressures," said Howard Archer at Global Insight. "It is very possible that this will be the case, and we certainly would not rule out a 25-basis point cut to 5.50% in November."

The BoE did not escort its widely expected decision with any statement but sterling rose and interest rate futures fell as there had been some apprehension of a surprise cut.

Britain's economy had been strongly growing and analysts had predicted a further rate rise this year. But it was only before the run on mortgage lender Northern Rock after it sought emergency funding from the bank.

There is huge anticipation in the next move the rate is likely to be declined by a quarter of a point and Archer said, a cut in November could not be ruled out but he said, the bank might come into action next year when he forecasts two cuts to bring official rates down to 5.25 percent by midyear.

The economy however is still sturdy and price pressures have not faded and the BoE said it will closely watch the credit conditions.