Bank of England expected to hold rates

Economists expect the Bank of England to keep the interest base rate at five per cent when it announces its decision at noon, a poll for inthenews.co.uk has found.

All nine economists surveyed predicted the Bank's monetary policy committee (MPC) would hold the rate steady for a third month in a row.

But several agreed the decision will be a tough one for the MPC this month.

Simon Hayes, senior UK economist at Barclay's Capital, said: "They've been caught between two posts: ideally given the possibility of inflation rising to more than twice the target rate they would like to have the freedom to raise rates...but given that growth has dropped below trend in Q1 [and] probably weakened a bit further in Q2 - the risk is if they hiked rates they'd create too much of an output gap.

"Caught between those two risks, I think they are going to stay put."

Howard Archer, chief UK economist at Global Insight, said: "The Bank of England's MPC seems most likely to keep interest rates unchanged at five per cent next Thursday at the conclusion of its July meeting.

"However, this could well mask a three-way split in the vote and the future path of interest rates is currently highly uncertain."

Several groups are hoping for an interest rate cut to help the economy through the credit crunch.

Economic indicators this month, including the UK's manufacturing output and employment figures suggest the economy is slowing significantly. News of widespread job cuts in the property and financial sectors are also contributing to the feeling of gloom.

The British Chambers of Commerce has warned that higher interest rates could lead to recession later this year as businesses struggle to get credit and the economy slows further.

But equally others are worried about inflation, which is creeping up and expected to rise beyond four per cent this year, twice the government target of two per cent.

The European Central Bank (ECB) raised the interest rate across the Eurozone to a seven-year high of 4.25 percent last week in a bid to control rising inflation.