LONDON, Nov 8: The Bank of England on Thursday kept its key interest rate at 5.75 per cent for a fourth month running, as expected, as policymakers sat tight amid rising concerns over the global credit squeeze.

Sterling hit a fresh 26-year high above $2.10 after the BoE’s nine-member Monetary Policy Committee (MPC) decided to keep borrowing costs at a near seven-year high.

The rate decision came shortly before the European Central Bank froze eurozone borrowing costs at 4.00 per cent, a move which had also been predicted by economists.

In contrast to the ECB and BoE, the US Federal Reserve has slashed its benchmark rate by 75 points since September, in two moves aimed at propping up the weak American economy.

US borrowing costs stand at 4.50 per cent, while economists are betting on a further cut before the end of 2007 owing to an embattled local housing market and expectations of softer US economic growth in coming months.

Investors are worried about the true extent of the global financial sector’s exposure to the troubled US housing market, which is now feeling the heat of home loans made to high-risk American borrowers.

Commercial banks, which borrow from central banks, have become very nervous about lending cash to each other amid fears over possible exposure to the US subprime mortgage crisis -- creating a credit crunch.

“As we have been arguing since August, there is a significant risk that the credit squeeze will exert a disinflationary impact on the economy via several channels,” Investec economist Philip Shaw said in London in the wake of the BoE’s latest rate call.

The BoE gave no statement alongside its monthly decision, as is usually the case when no change is made. Markets will have to wait until November 21 for minutes of the central bank’s two-day meeting.

However before then, on November 14, the Bank of England will publish its latest British inflation and economic growth rate forecasts.

British interest rates were increased on five occasions between August 2006 and July 2007, each time by a quarter-point, to tackle high inflation.

As a result, the country’s consumer price index has fallen dramatically to stand at an annual rate of 1.8 per cent in September, after spiking to 3.1 per cent in March.

The Bank of England is tasked with keeping British inflation at an annual rate of about 2.0 per cent.

“Admittedly, CPI inflation came in below its target for the third consecutive month in September,” Capital Economics analyst Vicky Redwood had said ahead of the BoE decision.

“However, inflation still looks likely to move back above its target within a few months on the back of rising petrol and food price inflation,” she added.

Britain’s economy, meanwhile, expanded by 0.8 per cent in the third quarter on a sequential basis and 3.3 per cent compared with a year earlier, according to official data.—AFP