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LONDON: The Bank of England kept its key lending rate unchanged at 5.0 percent Thursday, opting against a cut despite a looming recession in Britain in order to keep up the fight against soaring inflation.
As widely expected, the BoE's nine-member monetary policy committee left British borrowing costs at the same level for a fifth month running after its latest monthly rate-setting meet that began Wednesday.
The Bank of England will offer reasons for its latest decision when it publishes minutes of the two-day meeting on September 17.
"Despite the very real danger of recession, it was always likely to prove premature for the Bank of England to cut interest rates, given well above-target and rising inflation, still significant medium-term inflation risks and the weakness of the pound," said Howard Archer, chief Britain economist at Global Insight.
The European Central Bank also left its main lending rate unchanged at 4.25 percent on Thursday, while the Swedish central bank raised borrowing costs by a quarter of a percentage point to 4.75 percent to counter inflationary pressures. US borrowing costs stand at 2.0 percent.
"Inflationary pressures are doubtless keeping the minds of the central bankers highly focused but we do need to bear in mind that oil prices have fallen dramatically over the last six to eight weeks and this will start feeding through to a degree in the future," said CMC Markets analyst James Hughes.
The Organisation for Economic Co-operation and Development had Tuesday said that the British economy would be in recession over the second half of 2008.
The forecast came after finance minister Alistair Darling warned in a newspaper interview that Britain faced "arguably the worst" economic downturn in 60 years and it would be "more profound and long-lasting" than expected.
In the wake of Darling's comments at the weekend, sterling has slumped to all-time lows against the euro and a near 2.5-year trough versus the dollar.
British annual inflation grew at the fastest pace for 16 years in July as food prices surged, official data revealed, scuppering hopes of an interest rate cut to spur economic growth.
Inflation jumped unexpectedly to 4.4 percent in July owing to higher food and energy prices, marking the fastest annual rate since April 1992. It had stood at 3.8 percent in June.
The 12-month inflation figure also held above the Bank of England's 2.0-percent target for the ninth month in a row.
As well as the threat of inflation, Britain faces a recession after recent figures showed that the economy stuttered to a halt in the second quarter.
The reading of zero percent gross domestic product (GDP) growth was the country's weakest performance for 16 years.
The OECD, the Paris-based group of 30 developed countries, said Britain's economy would contract by 0.3 percent in the third quarter and by 0.4 in the fourth.
A recession is defined as two consecutive quarters of negative growth.
The OECD added that its growth forecasts reflected the impact that Britain's badly hit housing sector was having on the overall British economy.
House prices in Britain fell by 1.8 percent in August from July, major home loan provider Halifax said Thursday.
They have now fallen for a fifth month running by at least 1.5 percent, according to Halifax, part of British banking group HBOS.
House prices tumbled were down 10.9 percent in August from a year earlier - the sharpest drop since the series began in 1983, Halifax said in its latest monthly report.
The government on Tuesday moved to bolster the housing market, announcing that homes worth up to 175,000 pounds (215,000 euros, 311,000 dollars) would be exempt from property sales tax for the next year but analysts were sceptical the measures would have much of an impact in the current environment.
- AFP/yt
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