Bank keeps interest rate at 5.25%

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The Bank of England's nine-strong Monetary Policy Committee (MPC) left interest rates unchanged at 5.25% after reductions in February and December.

The widely-expected decision following the MPC's two-day meeting comes amid concerns over inflation pressure from oil prices - which have reached a new record - soaring food costs and rising household utility bills following price hikes by energy firms.

Global Insight's chief UK economist Howard Archer said: "Current elevated inflation risks meant that it was too soon for the Bank to be comfortable about cutting interest rates again despite serious concerns about the growth outlook."

Industry data this week also signalled surging costs for manufacturing and services firms, heaping pressure on prices.

Although the MPC expects the UK economy to slow sharply during the first half of 2008, it is charged with keeping inflation pegged at 2%. The official measure, the Consumer Prices Index, is currently above target at 2.2%.

The committee's inflation-controlling mandate means it has to be more cautious than policy-makers in the US - where rates have already fallen 1.25% this year - although its latest forecasts suggest that rates will fall to 4.75% by the end of 2008.

Most economists predict the MPC will hold off until May before easing rates further, although an April move is not ruled out if there are signs of a more serious slowdown.

Ian McCafferty, the CBI's chief economic adviser, said holding rates showed the Bank was determined not to compromise on inflation, but added that another cut would be needed "sooner rather than later".

The EEF manufacturers' organisation also stressed that the MPC was right to hold rates as the UK economy - while slowing - was in a healthier state than the US, which is verging on the brink of recession.