Money Unlimited

Larry Elliott, economics editor
Guardian

Monday December 4, 2000

The Bank of England will this week leave interest rates on hold for the 10th month in a row and continue to peg them at 6% until after the Budget in the spring, according to City economists.

With the Bank's nine-strong monetary policy committee set to announce its latest decision on Thursday, analysts believe that signs of slower domestic and world growth rule out the prospect of an increase in borrowing costs. However, Roger Bootle, economic adviser to services company Deloitte & Touche, said that the Bank was concerned by the possibility of a giveaway pre-election Budget and would not be prepared to reduce interest rates until it knew the contents of Gordon Brown's package.

Mr Bootle said the recent "hawkish" comments by the Bank's governor, Sir Edward George, should not be seen as a sign that rates were on their way up. "The governor's remarks should rather be interpreted as a warning shot across the bows for the chancellor."

Pressure for higher interest rates has eased in recent months, and Mr Bootle said he now expected two quarter-point cuts in rates in the middle of next year, followed by further easing to 5% by the spring of 2002.

Nick Parsons, chief currency strategist at Commerzbank, said: "Our prediction is that we will see a first birthday at 6%, which will be the longest period rates have remained unchanged."