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Interest rates 'to be untouched'

Interest rates are expected to remain at their historically-low rate of 0.5 per cent on Thursday, despite concerns over rising prices and inflation.

Owing to the slow economic recovery, the Bank of England is thought to be unlikely to raise its base rate.

With the Consumer Price Index (CPI) showing that inflation hit 3.3 per cent in November thanks to rising costs in food, fuel and clothing, the Bank fears that it could reach 4% by the warmer months.

Policy-setters at the Bank say they would rather weather the inflation rate storm rather than risk the dreaded "double-dip" economic recession.
Howard Archer, chief economist at IHS Global Insight, said: "The Bank's Monetary Policy Committee are now in a very difficult position. Although the UK market achieved very decent growth in the second and third quarters it is still in a very fragile state following the deep recession.

"We suspect most committee members will be reluctant to adjust policy until they get a clear idea of how the economy is reacting to fiscal policy being tightened from the start of 2011."

This came after it emerged the economic recovery struggled last year, in part due to the Arctic weather that froze the country in December.

Research from Markit/CIPS revealed that construction and services declined at the end of the year, while manufacturing showed growth. Growth forecasts were adjusted from 0.5 per cent to 0.4 per cent accordingly.

Copyright © Press Association 2011

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