Quote:

The Bank of England
LONDON (AFP) - The Bank of England has held its key interest rate at 4.75 percent, opting against a further rise after last month's surprise quarter-point increase.

The BoE decision Thursday had been widely predicted by economists and came after it had unexpectedly increased borrowing costs in August from 4.50 percent.

"Today's decision is no surprise," Investec Securities economist Philip Shaw said. "The MPC really would have wanted to avoid surprising the markets in two successive months."

However Shaw, in common with a number of other economists, is predicting an increase to 5.00 percent in November, citing strong growth and inflation.

The European Central Bank is expected also to raise eurozone interest rates at least once more this year, while the outlook is less certain for US and Japanese borrowing costs.

Sterling and London's FTSE 100 index of leading shares, falling already ahead of Thursday's announcement, extended slightly their losses following the rate freeze.

Britain's financial markets are being pressured by uncertainty surrounding the future of embattled British Prime Minister Tony Blair.

The BoE's monetary policy committee (MPC) gave no explanation for its latest move, as is customary when no change is made to the "repo" rate -- the rate of interest at which the central bank lends to commercial banks.

Markets must wait until September 20 for official comment, when minutes from the latest two-day meeting are released.

BoE policymakers had last month voted 6-1 in favour of hiking borrowing costs for the first time in two years to help control British inflation and dampen the nation's economic growth.

Following August's meeting, official data revealed that Britain's 12-month inflation rate stood at 2.4 percent in July -- the third month in a row it has stood above the government's 2.0-percent target.

BoE governor Mervyn King has said there is a 50-50 chance that inflation could rise above 3.0 percent by the beginning of 2007 amid soaring energy bills.

The Bank of England is tasked by Blair's Labour government with keeping annual inflation within 1.0 percentage point either side of a 2.0-percent target.

Britain's economy meanwhile grew at the fastest rate in two years during the second quarter, compared with the first three months of 2006, recent data showed.

Gross domestic product grew by 0.8 percent during the three months to June 30 compared with the first quarter -- the quickest quarterly pace of growth since the second quarter of 2004.

September's BoE meeting was meanwhile attended by eight policymakers, compared with seven at the two previous monthly gatherings. This was owing to the presence of Tim Besley, a professor at the London School of Economics, who recently took up his position on the MPC.

The committee was set to resume at full strength -- numbering nine members -- in October when Andrew Sentance, a former chief economist for British Airways, joins.

The MPC had been reduced to seven at the meetings in August and July following the surprise death of member David Walton and the decision by his peer Richard Lambert to head the Confederation of British Industry, a leading employers' association.

The CBI's chief economic advisor Ian McCafferty, welcomed Thursday's rate pause.

"The Bank should continue to wait and see how the outlook for growth and inflation unfolds before taking any further action," he said.

Before August's rate hike, the BoE had kept borrowing costs at 4.50 percent since August 2005.