LONDON, June 8: The Bank of England on Thursday froze its key interest rate at 4.50 per cent for the tenth month in a row, maintaining a wait-and-see policy over the economy.

Sterling steadied in response to the announcement, which had been widely forecast by economists and was followed by news that the European Central Bank had hiked its key rate to 2.75 per cent to keep inflation in check.

Thursday’s interest rate calls were set against a backdrop of tumbling global stock markets and investor concerns that Europe and the United States would face fresh rate hikes after three years of favorable credit conditions.

The international environment is becoming increasingly one where rates are rising, noted Investec economist Philip Shaw following the BoE decision.

The central bank’s rate-setting Monetary Policy Committee (MPC) did not publish the reasons for holding its “repo” interest rate unchanged, however.

The “repo” rate is the level at which the central bank lends to commercial banks.

Economists must instead wait until June 21 for official comment, when minutes from the MPC’s monthly two-day huddle are published.

Today’s decision was in line with market expectations... giving UK markets the excuse to focus attention back towards the condition of Wayne Rooney’s metatarsal, added Shaw, in reference to the England striker’s foot injury ahead of the World Cup which kicks off on Friday.

Bank of England watchers expect borrowing costs to increase to 4.75 per cent at some stage in the near future, with some — including Shaw — pencilling in a rise as early as August.

The bank seems very concerned about inflationary pressures in the near-term and it is also optimistic about the pace of growth in the economy, Shaw said.

If the economy continues to perform as it is, interest rates will rise at some point.

Last month the BoE had fuelled expectations that it was gearing up for a rate hike at some stage this year.

In May’s quarterly Inflation Report, the BoE had predicted that soaring oil prices would help push 12-month inflation above the government-set 2.0-per cent target in the next two years, before dropping back to around target.

The report had also forecast that British economic growth would remain near its long-term trend rate of 2.5 per cent over the next two years.

British 12-month inflation rose to 2.0 per cent in April from 1.8 per cent in March, lifted by an increase in air fares and rising domestic gas and electricity bills.

However, Global Insight economist Howard Archer was cautious over the need to raise borrowing costs.

Interest rates in Britain were last cut from 4.75pc in August 2005 to the current level, owing to subdued economic growth.—AFP