Interest Rates

As expected, the Bank of England decided to keep interest rates steady at 5% this month. With inflation around 3% well ahead of their 2% target and likely to approach 4% over the summer due to rising fuel and food prices, even falling house prices could not convince the Bank to cut interest rates.

If inflation rises above 3%, Bank Governor Mervyn King has to write a second letter to Alistair Darling to explain why it is so high. King has said he expects to write a number of such letters this year following the first letter in the Bank's history when inflation hit 3.1% last year.

The British Chambers of Commerce urged the MPC to consider the whole economic outlook and not just inflation. 'We understand the critical need for the MPC to maintain credibility, but it cannot disregard the worsening threats to growth,' said the BCC's David Kern.

The European Central Bank also left interest rates at 4% as it concentrated on its own inflation battle.