LONDON — The Bank of England held official interest rates steady at 5.75 percent on Thursday, saying it was too early to predict the effect on the wider British economy of recent global market jitters about shrinking credit levels.

Taking the unusual step of releasing a statement with its decision to keep rates on hold, the central bank said it was keeping a close eye on market developments, while stressing that its duty is to keep inflation on track for the government’s 2 percent target.

“In recent weeks, heightened concerns about a variety of asset-backed securities have led to disruption around the world, not only in markets for those financial instruments but also in money markets more generally,” the bank said in a statement after its monthly monetary policy committee meeting.

“It is too soon to tell how far the disruption in financial markets will impair the availability of credit to companies and households,” it added.

The statement _ the first one issued with a hold decision since May 1999 _ followed growing criticism of its stony silence amid the growing turmoil in markets caused by the collapse of the U.S. subprime mortgage market.

The recent market turbulence stems from fears over banks’ exposure to the U.S. subprime mortgage markets. That has sparked a credit squeeze, raising the cost of borrowing.

Even as its European, Asian and U.S. counterparts injected large amounts of funds to support markets, the Bank of England maintained its silence until Wednesday when it made its first intervention by offering to pump billions of extra pounds into the banking system to ease high short-term borrowing costs.

It offered to raise its aggregate reserves target for the next month by 6 percent to relieve pressure on overnight rates and announced its willingness to add 25 percent more if overnight rates remain high.

However, the bank added that it should not be expected to take additional action to reduce three-month borrowing costs among banks, which have jumped to their highest rate in almost nine years as they become increasingly reluctant to lend to rivals until the extent of the crisis is known.

Economists said those measures were the minimum necessary, and the bank’s comments on Thursday suggested that policymakers were keeping their options open _ before the market turmoil many had forecast the bank would raise rates again before the end of this year.

“On balance … we now no longer expect interest rates to rise to 6 percent in the fourth quarter, but instead anticipate that the Bank of England will sit tight for an extended period,” said Global Insight economist Howard Archer.

Business leaders welcomed the decision to keep rates on hold, citing early indications of a decline in factors that have encouraged the bank to lift rates five times in the past year.

Inflation eased to 1.9 percent in July, the first time it has been below the 2 percent target in more than a year, on sharp declines in food prices and furniture costs.

Retail sales growth also slowed, with same-store sales up 1.8 percent in August, compared to 2.5 percent the same month last year.

There are also tentative signs that the recent rate rises are beginning to dampen the housing market. Halifax, Britain’s biggest mortgage lender, said that house prices had increased by just 1.6 percent during the three months to the end of August, compared with a gain of 4.5 percent in the first quarter of the year.

“There is now much clearer evidence that the cumulative effect of five rate rises since last August is slowing activity in the housing market,” said Michael Coogan, Director General of the Council of Mortgage Lenders’.

“The bank is right to wait and see, and if market conditions produce a further tightening of credit, it will strengthen the case that the next decision should be that rates go down, not up.”

Source:

http://www.chron.com/disp/story.mpl/ap/fn/5113032.html