The Bank of England held interest rates at 5 per cent for a second month running today, as expected, as it balances the risk of a sharp economic slowdown against the threat of high inflation shooting up further.
Economic news in recent days has been bleak. House prices are falling, consumer confidence has sunk to its lowest since the early 1990s and even the job market appears to have turned.
But markets had priced in no chance of a cut this week as inflation is a full percentage point above the central bank's 2 per cent target and is expected to go higher still because of soaring food and energy prices.
Still, most analysts expect the central bank to cut interest rates later in the year due to the sharp economic slowdown and increased fears of a housing market crash.