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Interest rates set to stay at 5% for now

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  • Interest rates set to stay at 5% for now

    Bank of England policymakers are expected to keep interest rates on hold, but experts are warning that a shock rise cannot be ruled out.
    Most economists forecast that the Bank's Monetary Policy Committee (MPC) will leave rates at 5% for the fourth month in a row.
    However, steep rises in energy bills, such as British Gas's record hike last week, have added to inflationary concerns, putting pressure on the Bank despite the risk of a recession also looming large.
    The MPC is charged with keeping inflation at the Government-set target of 2%.
    The official rate of inflation, the Consumer Prices Index (CPI), has soared far above this target. It is now at 3.8% and is due to surge further in coming months, possibly as high as 5% or more.
    The MPC is thought to have had a preview of the July inflation data ahead of its rates decision, which may have added to its concerns on inflation.
    And economists have highlighted the risk of a rate rise as one MPC member called for a hike at July's meeting - sending a clear signal on the Bank's determination to control inflation.
    However, the health of the UK economy is also looking decidedly grim, with news earlier this week that activity in the manufacturing sector fell at its fastest pace for nearly a decade during July.
    There was also more gloomy news from the services economy, even though business activity, as measured by the Chartered Institute of Purchasing & Supply (CIPS), edged up to 47.4 in July from 47.1 in June, above City forecasts of 46.6.
    CIPS said services firms faced a "dangerous combination" of worsening market conditions and record cost inflation.

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