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Interest rates 'to remain on hold'

Bank of England policymakers are expected to keep interest rates on hold for the 18th month in a row this week amid gathering gloom over the economy.

The Bank's Monetary Policy Committee (MPC) is widely predicted to deliver yet another decision on Thursday to hold Bank Base Rate at 0.5% - and keep it there for many months to come.

It has so far opted to prioritise the need to support the economy over efforts to rein in stubbornly high inflation and economists believe the threat of a stalling recovery will continue to outweigh price concerns.

The UK economy may have risen by a far-better-than-expected 1.2% in the second quarter, but the signs point to faltering growth since then.

Howard Archer, chief UK and European economist at IHS Global Insight, said the MPC will vote to protect "what is still overall muted recovery from very deep recession".

"Although UK GDP spiked up by 1.2% in the second quarter, the Bank is very well aware that this substantially exaggerates the strength of the economy and that the recovery is still at risk from serious headwinds," he added.

The powerhouse services sector saw its slowest growth in more than a year during August, according to the Chartered Institute of Purchasing and Supply's (CIPS) closely-watched industry survey.

Recent CIPS data from manufacturers was also worrying, with growth in August hitting a nine-month low, while the latest official construction figures showed orders plunging 14% in the second quarter, suggesting a rocky road ahead.

The impact of the Government's austerity drive is hitting confidence across the economy, with firms fearing the fall-out will spread far and wide.

With spending cuts looming large and tax hikes just months away, consumers are also feeling the pinch.


From Belfast Telegraph