Bank of England holds rates, cut seen in Feb

LONDON (Reuters) – The Bank of England left interest rates unchanged on Thursday, following a week of intense speculation over whether it would cut them for a second month running to shore up economic growth.

The Bank held the main rate at 5.5 percent, having lowered it a quarter percentage point in December.

Still, the pause is likely to be short-lived and the Bank is widely tipped to cut rates again in February, when it publishes new growth and inflation forecasts.

The pound rose after the decision while Britain’s index of leading shares (.FTSE) turned negative with retail stocks taking a sharp knock.

Most economists had predicted a no-change verdict but money markets, spooked by signs of a consumer retrenchment, were pricing in a 60 percent chance of a cut.

“We suspect that the deteriorating growth outlook, particularly for the household sector, was balanced by worries on inflation,” said James Knightley at ING Bank.

The impact of a slowing housing market and falling consumer confidence is already being felt by retailers and the international outlook has also darkened. Many investors expect the U.S. Federal Reserve to cut rates by 50 basis points this month to head off the risk of recession.

Inflationary pressures still lurk. Sterling has fallen in trade-weighted terms, oil recently touched $100 a barrel and food prices have risen sharply.

“With money markets returning towards some semblance of normality and sterling weakening sharply, the Monetary Policy Committee was never likely to opt for back-to-back rate cuts,” said Andrew McLaughlin, chief economist at RBS Group.