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BoE leaves rates on hold
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December 5, 2001: 6:53 a.m. ET
Bank of England left interest rates at 4% as consumer, housing remain robust
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LONDON (CNN) - The Bank of England left interest rates unchanged on Wednesday as consumer spending and the housing market remain buoyant.
The BoE has lowered its benchmark interest rate seven times this year, including a half-point cut at its November meeting. The rate now stands near a 40-year low of 4 percent.
The Confederation of British Industry, the UK's leading employers' group, said on Tuesday retailers enjoyed a surprise rally in November even as economic growth slows in the world's fourth-largest economy.
Economists believe the central bank may have done enough to stimulate demand following the September 11 terror attacks and the next move could be downward.
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Bank of England, London | |
"The U.K economy is in a stronger position than many European economies, and perhaps now is the time to pause for a bit," Paul Donovan, economist at UBS Warburg, told CNN.
"I think there is a reasonable chance we will see another interest rate reduction before the cycle is over, but I don't think it is going to happen quite yet."
Gordon Brown, the UK's Chancellor of the Exchequer, predicts the economy will grow by 2.25 percent this year, in line with his earlier forecasts, and by 2.5 percent in 2002, down just slightly from previous estimates.
While shoppers are still out in force, the residential housing market is also defying gloomy forecasts of a downturn. Britain's largest mutual mortgage lender, the Nationwide Building Society, said house prices rose 0.7 percent last month from October to stand 12.8 percent up on the year.
Meantime, the European Central Bank is under more pressure to cut rates, with concerns that the 12-nation euro zone could follow Japan and the United States into recession. The euro zone economy is expected to grow by 1.6 percent this year and 1.3 percent in 2002 - with the biggest economy, Germany, forecast to grow by an annual rate of about 0.7 percent.
The ECB surprised the markets in November by lowering its key rate by a bigger than anticipated half a percentage point - to 3.25 percent - its fourth cut this year.
But the central bank is expected to hold the line when it meets on Thursday - with its main focus remaining on inflation, which is running at an annual rate of around 2.2 percent, above the ECB's target level of 2 percent.
"For the foreseeable future, the level of interest rates seems to us to be appropriate," ECB Vice President Christian Noyer told reporters last month.
Still, economists say the ECB may have little choice but to cut again early next year if economic conditions in the euro zone continue to deteriorate.
More evidence of a stagnating euro zone economy could come on Thursday, when third-quarter gross domestic product figures are expected to show growth of just 0.1 percent from the previous quarter. 
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