BoE holds interest rates as expected

LONDON (AP) — The Bank of England has kept its benchmark interest rate unchanged at 5 percent.

The decision Thursday confirms expectations by economists that policymakers are now more concerned about surging inflation than the slowing domestic economy.

It is the third consecutive month the bank has held rates steady. It had made two quarter-point cuts earlier in the year amid signs that the economy is heading for a significant downturn as the housing market stalls and consumer confidence falls.

"We still think the next move will be down," said Vicky Redwood, an economist at Capital Economics. "It might not be for a few months yet, although if the activity data continues to weaken sharply as it has done in recent weeks then we might not have to wait too long."

However, further cuts could spur inflation, which is already well above the bank's 2 percent target rate, and some economists now expect the next move from the bank to be a rise in interest rates.

However, the minutes to this week's decision -- due on July 23 -- could show a split among policymakers.

Arch dove David Blanchflower is unlikely to have dropped his call for lower interest rates but there is also plenty on the inflation front for hawks such as Andrew Sentance and Timothy Besley to argue that rates need to stay on hold for some time.