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Base rate stays at 4.5 per cent

11 March 2006
The Bank of England (BoE) kept the base rate at 4.5 per cent for the seventh consecutive month in March, in a move that was widely expected but still disappointing to many.

Expectations of a further rate cut were dampened last month after the Bank said it thought that inflation was set to stay around the two per cent target level for some time to come.

Meanwhile, the property market has continued its slow and steady recovery, but the absence of a surge in house prices led the Bank to consider a further cut was unnecessary.

This may come as a disappointment to potential first-time buyers who still feel priced out of the market, but it is retailers who are likely to feel most frustrated.

Recent figures from the British Retail Consortium show consumers are continuing to stay away from the high street, with like-for-like sales in February just 0.6 per cent higher.

A number of analysts are now predicting no move in the base rate before May at the earliest, with some suggesting it could even be kept on hold for the rest of 2006.

Chief economist at Investec Securities, Philip Shaw, said: "The balance of news has turned around significantly over the past month and we now expect rates to remain on hold at 4.5 per cent for the remainder of the year.

He added that this "would mean the longest period of interest rate stability since the MPC was formed in 1997."

However, Ian McCafferty, chief economic advisor to the CBI, said that "with the current sluggishness of the economy" a further cut could be expected "before too long".

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