Bank of England leaves interest rate unchanged

LONDON (AFP) - The Bank of England on Thursday left its key interest rate unchanged at five percent, ruling out a back-to-back cut to help stimulate economic growth as inflation remains high amid surging oil prices.

The decision by the BoE's nine-member monetary policy committee (MPC) came ahead of a rate call by the European Central Bank due at 1145 GMT.

The MPC gave no reason for the latest policy move, as is the custom when it does not change the interest rate it offers commercial banks. Clues as to the decision were expected in the Bank of England's inflation report on May 14.

"Rumours circulating over the past few days surrounding an imminent reduction in interest rates proved to be false," said Investec economist Philip Shaw.

"We were not surprised. Admittedly there has been a certain amount of poor news on the economy this week ... However other factors seem to have overridden this, including the committee's aversion to back-to-back cuts, on the grounds that this could boost inflation expectations," he said.

Inflation was 2.5 percent in March, unchanged from February but above the Bank of England's 2.0-percent target for a sixth straight month.

At its last meeting, the MPC cut the key interest rate by 25 basis points as it sought to balance the risks of rising near-term inflation and an economic slowdown resulting from the credit crunch.

The economy made a poor start to 2008, with first-quarter growth of just 0.4 percent, the slowest pace since the first quarter of 2005.

Later Thursday, the European Central Bank was widely expected to keep eurozone borrowing costs at 4.00 percent.

The US Federal Reserve last week cut its key lending rate by a quarter-point to 2.00 percent in a fresh bid to fire up the US economy.

The British central bank has acknowledged that near-term inflation will shoot higher because of soaring commodity prices.

The price of crude oil struck a record high of 123.93 dollars on Wednesday.

The Bank of England

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