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The Bank of England kept interest rates at 5% on but analysts say a slowing economy will force it to cut borrowing costs in the near future, even though inflation is heading higher.
House prices are falling, consumer confidence is dropping and growth in Britain's service sector has almost ground to a halt as a global credit crunch means the cheap loans and easy lending of the last few years are over.
The central bank has already cut borrowing costs 3 times from a peak of 5.75% since 2007 to help consumers and businesses. Many economists say rates could drop as similar number of times over the next year.
"The financial crisis is sharply applying the brakes on the economy," said Peter Spencer, chief economic adviser at Ernst and Young. "Its most obvious effect is to be seen in the housing market, where the mortgage famine is rapidly undermining both prices and transactions."
But inflation is running high, making life difficult for policymakers in Britain as well as in many other parts of the world, as supermarkets raise food prices and the cost of petrol hits record highs.
BoE policymaker David Blanchflower warned that the economy could soon follow the United States into recession and that house prices could easily tumble 30%.
Other policymakers disagree, especially as the BoE's mandate is to keep inflation at 2%. It is currently well above that and expected to go higher still.
The European Central Bank also left interest rates unchanged on Thursday at 4% as it grapples with high inflation and a slowing euro zone economy.
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