MPC all together on rates freeze

THE Bank of England today gave the clearest signal yet that it is in no hurry to start pushing up interest rates, despite mounting signs that the economic recovery is gathering pace.

As figures showed unemployment fell last month to its lowest for more than a quarter of a century and the public finances are in good shape ahead of today's Budget, it emerged that the Bank's nine-strong monetary policy committee voted unanimously to keep the cost of borrowing at 4% this month.

'All agreed that the case for increasing interest rates in order to restrain consumption growth was not yet pressing,' the minutes of the meeting said. 'For some members, recent news taken as a whole added some weight to the arguments for an increase in rates, though it was by no means decisive; most, however, took a more neutral view.'

Economist George Buckley at Deutsche Bank said: 'The MPC remains sanguine on the need to tighten policy in the very near term. While the Bank is preparing the market for an eventual rise in rates, it is not going to come through just yet.'

Pundits said the much-touted £7bn tax increase in Chancellor Gordon Brown's Budget, of which high-earners were expected to bear the brunt, would also help to keep interest rates low.

There was more good news for Brown from figures showing unemployment fell by a further 6,000 in March to 939,600 - the lowest since October 1975. The jobless rate was steady at 3.1%.

Despite the remarkable resilience of the labour market wage pressures remain well under control. Average earnings growth in the three months to February was 1.9%, down from 2.9% in the three months to January and the lowest since records began in 1991.

Lower City bonuses this year than last were responsible for much of the deceleration, but the underlying trend was one of benign growth. HSBC economist John Butler said lingering job insecurity in the wake of last year's economic slump was keeping a lid on wage demands. That, in turn, should help to cool High Street spending, he said.

Meanwhile, the public finances ended the financial year in better shape than expected. Net borrowing in March was £5.6bn, taking the full-year deficit to £1.3bn, below the £2.5bn pencilled in by the Chancellor in November's Pre-Budget Report.

Sterling was up half a cent at $1.4445, or 61.45 cents against the euro, while gilts were slightly lower.