BoE Leaves Rates on Hold, February Cut Expected

AP

The Bank of England left interest rates on hold at 5.5 percent Thursday, despite clear signs of weakness in the retail and housing sectors.

But the Monetary Policy Committee is likely to resume its rate-easing strategy Clem Chambers, CEO of ADVFN, told "Power Lunch Europe." 

"Interest rates are going down and they are going down for quite a long time," Chambers said after the decision.

The reasons for the pause could include growing concern about inflation and wanting to prevent panic in the markets Paul Dales, economist at Capital Economics, told CNBC.com Wednesday. Back-to-back reductions might have signaled the central bank had underestimated the speed and severity of the UK’s economic slowdown.

Many market watchers were half expecting a cut from the MPC, because declining house-price inflation and weak Christmas sales figures from many retailers, as well as from the British Retail Consortium, backed up the need for easing.

"We suspect that the deteriorating growth outlook, particularly for the household sector, was balanced by worries on inflation," James Knightley, analysts from ING Bank said in a market note following the decision.

The central bank was keen to wait until it gets a clearer picture on the country’s economic outlook, Knightley added.

Sterling rose versus the dollar after the announcement, as many investors had expected the BoE to continue easing. No statement from the MPC accompanied the decision.

The decision was in line with the majority of economists polled by Reuters last week, who said the likelihood of a cut from the MPC was 35 percent, with only 12 out of 63 expecting a reduction.

© 2008 CNBC.com