8 May 2003, 15:33  BoE holds interest rates steady at 3.75 pct

LONDON, May 8 - The Bank of England left interest rates steady at a 48-year low of 3.75 percent for the third month in a row on Thursday as a sharply lower pound offset concerns over weak growth. Market analysts had been split on whether the BoE would cut this month, with a poll this week putting the chances of a reduction at 51 percent. Many economists had expected that the pound's sharp fall -- it hit a six-year trade-weighted low on Wednesday -- would stay the central bank's hand as it prepared its quarterly inflation forecasts for next week.
Inflation has stayed above the government-set target of 2.5 percent for fifth consecutive month in a row in March, and a sharp fall in the pound would push up inflation further out as import prices rise. But others had thought that weaker growth -- the economy expanded by just 0.2 percent in the first quarter of the year -- meant that the Bank's nine-strong Monetary Policy Committee would take action immediately. Gilts and interest rate futures fell back on the news while the pound gained ground marginally against the dollar and euro. Dealers were now looking ahead to the European Central Bank's interest rate decision at 1145 GMT though no change was expected.
Businesses expressed their disappointment at the BoE's decision to keep interest rates on hold. "The timing of this decision is out of line with most of the evidence showing the economy weakening further," said Martin Temple, director general of Engineering Employers Federation. "While the pound has fallen to a more competitive level, weakness in the world economy will keep both recovery hopes and inflation in check. As evidence mounts of the dire state of our markets in the eurozone, the Bank will be under growing pressure to cut rates," he said. The U.S. Federal Reserve also held interest rates steady this week, though it raised the prospect of a cut soon as it warned about the risks of inflation falling even lower. The BoE last cut rates in February by a quarter-point, a decision that took markets completely by surprise.//

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