LONDON, Dec 4: The Bank of England began its usual monthly interest rate deliberations on Tuesday, and was widely expected to leave borrowing costs at 4.0 per cent, after a deep reduction in November.

The bank has chopped its base rate seven times this year, culminating in last month’s surprise cut of 0.5 percentage points, or 50 basis points, which reduced rates to their lowest level in almost 40 years.

But most economists expected the bank’s monetary policy committee (MPC) to pause for breath before making any further moves, though further reductions could filter through in 2002 if the economic situation worsens.

The Bank of England did 50 basis points last time so that has removed the need for them to do anything else this year, said Sonja Hellemann, a currency expert with Dresdner Kleinwort Wasserstein.

There is still a risk that we will have more next year, she added however.

The economic data that the bank’s nine experts will be poring over has been mixed at best.

Overall, the economy continued to grow at a healthy 2.1 annual clip in the third quarter. The government is predicting growth of 2.25 per cent this year and 2.0-2.5 per cent in 2002.

Other indicators such as house prices and consumer spending still paint a picture of a nation of shoppers only mildly discouraged by the September 11, attacks or the global economic slowdown.

House prices are defying gravity, according to the Nationwide building society, which said Tuesday that prices rose in November despite expectations of a fall.

The housing market has so far shrugged off all the bad news about the global and, increasingly, domestic economies, said Nationwide group economist Alex Bannister.

At first glance this is a little surprising. However, the UK economy has yet to slow significantly and despite a modest reduction in consumer confidence following September 11, retail sales and consumer borrowing remain robust.

Yet sectoral surveys make grimmer reading. Manufacturing has been mired in recession for much of the year, and a recent report warned that the crucial service sector, which makes up more than half of the economy, was also in the grip of slowdown.

In the supposedly most inflation-prone part of the economy, the service sector, prices have fallen over the last three months and are expected to fall again over the next three months, said Roger Bootle, economic advisor to Deloitte and Touche accountants.

While some (bank) members still think that their battle is with inflation, this survey makes it clear that for most business people their battle is now with deflation, he said.

Weighed against this are the mildly reflationary implications of finance chief Gordon Brown’s budget outline revealed late last month, which included heavy additional spending on the National Health Service.

Overall, the conflicting signals left economists convinced that the bank would leave rates on hold and reassess the need for further rate cuts early next year.

If there is a further cut in this rate cycle, we think it will come in January or February, said Barclays Capital in a report.—AFP