Interest rates kept on hold

The cost of borrowing was maintained at 3.5% today after the Bank of England decided to hold back from a second consecutive cut in interest rates.

The bank's nine-strong Monetary Policy Committee (MPC), headed by new Governor Mervyn King, resisted calls from embattled manufacturers to make a further cut.

Economists said the committee was likely to have been influenced by recent economic data which showed clear signs of revival in Britain's economy.

The falling pound along with the strength of high street spending and household borrowing added weight to the argument to keep rates on hold.

Policymakers were also likely to have considered that last month's easing of interest rates after months of pressure from manufacturers has not had time to have any impact on industry.

Economists were now predicting rates have reached their low point, with many thinking they will stay at 3.5% until the end of 2003 before rising to 4.75% by the end of 2004.

Doug Godden, head of economic analysis at the CBI, said: "With conflicting signals about the economy's direction, the MPC faced a tough task this month.

But it is difficult to argue with this decision.

"Interest rates appear to be set at the appropriate level for now. However, business will look to the MPC to monitor the global situation and be prepared to cut again if the situation warrants it."