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News: Base rate held unchanged at 4.5%

As expected, the Bank of England's monetary policy committee (MPC) has held the base rate unchanged for the third month in a row. The MPC's decision comes as no surprise; the real flip-flop has been in city expectations. Barely a few weeks ago, most economists were expecting a cut in the base rate this month.

However, inflation, by the Bank of England's target CPI measure, rose to 2.5% in September and is at the top end of the MPC's stated target range. Those analysts still expecting lower interest rates have now pencilled in February next year as a likely date while some voices are even beginning to suggest that the next move in base rate could be upwards.

That may come as a surprise to some but we need to remember what the bank's remit is control of inflation and not of economic growth. Economic signals continue mixed with stuttering manufacturing output, complaints from retailers despite a better-than-expected 0.7% rise in retail sales in September and continued inflationary pressure from high fuel costs.

The firming up of interest rate expectations has already had an impact on consumers with the withdrawal of some of the more attractive fixed and discounted rate mortgage deals. These offers are dependent on the cost of finance to the lenders in the citys money markets and those costs have been rising as the expectation of a cut this month faded.

Just what the MPC really thinks about the outlook for inflation over the coming months will become clearer with the publication of the latest Inflation Report, due out next week.

The nine-member Monetary Policy Committee (MPC) voted unanimously to keep base rates on hold at 4.5% in October, according to the minutes of last month's meeting. The smart betting is on what is likely to have been on a re-run this month. The last rate cut in August was voted through against the wishes of Bank Governor Mervyn King it was the first time the Governor had been outvoted since the MPC was formed in 1997.

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