Borrowers are set to be spared a second rise in interest rates in as many months.

The Bank of England is poised to keep its base rate at 3.75 per cent on Thursday, although the reprieve is seen as only temporary.

Experts predict rates will rise again in February, building on the Monetary Policy Committee's (MPC) decision on November 6 to increase the cost of borrowing for the first time in almost four years.

Governor Mervyn King's comments of a "cautious" approach to raising rates fuelled speculation of a pre-Christmas "no-change" decision.

He is concerned over the impact higher borrowing costs will have on the UK consumer, which has stacked up record debts on the back of low rates.

Research showing consumer confidence at its lowest level since the start of the Iraq conflict is also likely to concern the committee.

The recent quarter of a point hike meant shoppers were more hesitant over major purchases and more likely to save for the future, the study by market research group Martin Hamblin GfK reported.

That will offset signs of further economic progress over the last month, with third quarter GDP figures proving stronger than expected.

Investec economist Philip Shaw said: "The committee looks intent on taking matters steadily and not rushing into another hike."

HSBC economist John Butler believes the chances of another rate hike are slightly stronger as most recent data has been positive.

However, he added: "Given the lack of any discussion of a half-point hike in November, a move in December would contradict their apparent desire to adopt a gradual approach to raising interest rates."

The Bank's decision to raise rates a month ago put about £15 a month on a £100,000 mortgage. Analysts expect a base rate of 4.5 per cent by the end of 2004.

Monday December 01, 2003