Interest rates kept on hold

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Members of the Bank's monetary policy committee (MPC) concluded their two-day meeting by keeping rates on hold, despite pressure to follow the example of the US Federal Reserve with an immediate cut in the cost of borrowing.

While the Bank's base rate was left at 5.75%, economists said there was a strong chance that a reduction to 5.5% will follow next month.

The MPC will now have more time to assess the impact of money market turmoil on consumer and economic confidence.

Tighter lending conditions have already forced up the cost of some mortgages, while a recent survey indicated the recent run on Northern Rock had knocked spending intentions among UK consumers.

And Halifax said that house prices fell by 0.6% during September as the property market showed signs of running out of steam.

The impact of the credit squeeze on lending and deal activity is significant because of the contribution made by the financial services sector to the overall economy in recent years.

But members of the MPC will have been wary about trimming interest rates at a time when high oil and food prices could keep inflation above the Government's target of 2%. The Bank's last inflation report in August indicated rates would probably need to hit 6%.

The British Retail Consortium led calls for a rate cut this week, arguing that five rate rises in the past year had taken their toll on consumer confidence.

The Ernst & Young ITEM Club, which uses the Treasury's economic model for its forecasts, also said a cut would show the Bank of England responding with "appropriate vigour" to the risks posed by markets turmoil.