LONDON, Oct 10: The Bank of England announced on Thursday its policymakers had agreed to leave the central bank’s main lending rate unchanged at a 38-year low of 4.0 per cent for the 11th month in a row.

Shortly afterwards, the European Central Bank announced it was holding its main “refi” refinancing rate steady at 3.25 per cent.

The British central bank’s nine-member monetary policy committee (MPC) gave no explanation for its decision, which had been expected by a majority of economists here given the continued strength of the housing market and retail spending which have helped the economy skirt recession.

But many analysts nevertheless predict that rates may be cut again later this year to shield the economy from the heavy falls on global stock markets.

Underlying inflation in Britain also remains comfortably below the official target of 2.5 per cent, slowing to 1.9 per cent in the year to August from 2.0 per cent in July.

If equities continue their downward trend there remains a good chance rates will come down next month, said Philip Shaw, economist at investment bank Investec.

Britain’s FTSE 100 index of leading shares has fallen around eight percent since the beginning of September in tandem with world stock markets, leaving it almost 30 per cent down since the start of the year.

The FTSE 100 remained mired in loss in the wake of the decision, albeit off earlier lows, trading down 0.3 per cent at 3,730.4 points.

The pound was slightly weaker at $1.5638 against 1.5644 shortly before the announcement.

Simon Rubinsohn, chief economist at stockbroker Gerrard, said that it had been evident from the records of the last MPC meeting that there had been a growing level of concern about the prospects for the British economy.

Since then, equity markets have continued to weaken and the economic news flow has not been terribly positive, he said.

But he said it had been unlikely that the British central bank would loosen monetary policy in the absence of a similar move by the US Federal Reserve.

This makes a shift in base rates at the November MPC meeting, which follows directly on from the next meeting of the Federal Reserve, a much more realistic possibility, he added.

Unions nevertheless chided the Bank of England for not cutting some slack for struggling manufacturers, while employers urged the central bank to remain vigilant to economic risks.

The chief economist of the Engineering Employers’ Federation, Stephen Radley, said the Bank of England had “missed an ideal opportunity” to cut interest rates.

Manufacturing confidence has taken a battering over the summer in the face of a falling stock market and an international outlook that is clearly getting worse.

Ian McCafferty, chief economic adviser at the Confederation of British Industry, the country’s top business grouping, said that businesses benefited from interest rate stability.

But there are worrying signs emerging. Growth in the rest of the world is losing momentum, UK manufacturing remains mired in recession, and consumers are becoming less keen to spend.

The MPC needs to remain alive to these dangers and be prepared to cut rates if further signs of weakness emerge, he said.—AFP