LONDON (AFP) - The Bank of England announced it was leaving interest rates unchanged at 4.75 percent for a second successive month, amid signs that Britain's red-hot housing market is cooling slightly.
The decision was widely expected by financial markets after recent data indicated a slowdown in the housing market and consumer spending in the wake of five quarter-point rises in British interest rates since November.
Shortly afterwards the European Central Bank left official borrowing costs unchanged at 2.0 percent.
The Bank of England's nine-member monetary policy committee (MPC) gave no explanation for its decision, as is usually the case when it makes no change to the main official "repo" rate -- the rate of interest at which the British central bank lends to commercial banks.
The Bank of England said it would provide minutes of the meeting on October 20.
"Based on the current evidence that the housing market is slowing, consumer spending has moderated recently, the service sector has lost some of its buoyancy and the manufacturing sector's recovery is stumbling, we have recently switched to the view that the Bank of England will not act again this year," said Howard Archer, an analyst at Global Insight, an independent consultancy.
"Even so, we suspect that some of the recent data exaggerates the economy's loss of momentum and that interest rates will have to rise a little higher in 2005," he added.
The British pound showed little reaction to the decision, easing to 1.7804 dollars, from 1.7807 just ahead of the decision and 1.7801 late on Wednesday.
Unions welcomed the Bank of England's move, noting it would give a boost to Britain's struggling manufacturing industries.
"For this relief, much thanks," said Ian Brinkley, the chief economist for the Trades Union Congress, that represents almost seven million workers in 70 affiliated unions.
"Business and homeowners need a sustained period of interest rate stability. Activity is slowing in the service and manufacturing sectors and higher borrowing rates are starting to tame the housing market. Holding interest rates is the sensible course," he added.
David Frost, director general of the British Chambers of Commerce, said the decision was the "right one" in light of extremely weak manufacturing data published Wednesday.
"The Bank should now rule out further rises this year, and for the forseeable future, unless we see an upturn in growth, and in manufacturing in particular," he added.
Britain's manufacturing output unexpectedly dropped by 0.8 percent in August from July, the first time since January 2002 that output has fallen for three months in a row, official figures showed.
On the housing market, recent surveys have showed only moderate monthly growth in prices. Mortgage lender Nationwide said British house price rose by 0.2 percent from August and by 17.8 percent from the same period a year ago.
In August, prices rose by 0.1 and 18.9 percent respectively.
But a survey from leading home-loan provider Halifax provided the exception, showing stronger-than-expected house price growth, of 1.4 percent in September from the previous month for an annual rise of 20.5 percent.
The main aim of the Bank of England, which was given responsibility for setting interest rates in 1997, is to keep annual inflation as close as possible to the 2.0 percent target set by the government.
British consumer price inflation slowed to an annual rate of 1.3 percent in August from 1.4 percent in July.