INSTANT VIEW - Bank keeps interest rate steady at 5.0 percent

LONDON (Reuters) - The Bank of England kept interest rates steady at 5.00 percent on Thursday, as widely expected.

Following are reactions from business groups and economists to the decision.

HOWARD ARCHER, GLOBAL INSIGHT

"...the future path of interest rates is currently highly uncertain as the Bank of England faces its most challenging economic environment since at least the early 1990's.

"We believe it is most likely that interest rates will stay at 5.00 percent for many months to come, as very weak economic activity increasingly contains and then dilutes underlying inflationary pressures.

"However, given that inflation is set to rise well above 4.0 percent over the coming months and is likely to still be around 4.0 percent late in 2008, the Bank of England will probably be reluctant to cut interest rates until 2009 unless the economy really falls off a cliff over the coming months."

STEPHEN ROBERTSON, BRITISH RETAIL CONSORTIUM

"No move is the right move for now. With increasing fears of recession, it's crucial the Bank pushes the economy towards better health rather than over the edge.

"Raising rates would be pointlessly kicking customers and the economy when they are down. As the Governor of the Bank of England acknowledges, almost all the increase in Consumer Price Index inflation this year is due to rising global fuel and food prices.

"UK inflation is not coming from excessive home demand and it will not be affected by keeping interest rates high. When conditions allow, the Bank's next move should be down."

JOHN HAWKSWORTH, PWC

"With inflation likely to rise even further in the later half of this year, there is little room at present for the Monetary Policy Committee to come to the rescue of either the economy or the housing market with interest rate cuts.

"Indeed, in the short term, there is a danger they may feel the need to raise rates to keep inflationary expectations and wage claims under control. However this would add to the risk of recession."

SIMON RUBINSOHN, RICS CHIEF ECONOMIST

"Today's decision by the MPC to leave base rates on hold is understandable given the ongoing concern about the inflation outlook. But the RICS still believes that the weakening economic picture, as signalled most visibly by the deterioration in both business and consumer sentiment, will justify an easing in policy later in the year.

"Crucially, given Mervyn King's remit, there is at this stage very little evidence of second round effects from the jump in food and energy costs. That said, it is not surprising that the Bank wants a little more convincing that inflation expectations are not ratcheting upwards."

PHILIP SHAW, INVESTEC

"This was no surprise at all, but uncertainty still rages over the direction of the committee's next move. Last month, David Blanchflower voted for an easing, while some members considered the case for a tightening. However there has been a depressing run of increasingly bleak economic data recently.

"The market debate is increasingly shifting away from whether the MPC will put rates up, towards the likely timing of the next move down."

STUART PORTEOUS, RBS GROUP ECONOMICS

"I can't think of a better example of what it means to be stuck between a hard and a rock place. Recent news on the growth front has been disappointing, sometimes dishearteningly so, while inflation has shown no signs of subsiding.

"Until a stronger case can be made for a decisive move in either direction, the MPC will do what it has done today - keep rates on hold."

GEORGE BUCKLEY, DEUTSCHE BANK

"The MPC currently faces a challenging environment of slowing growth and at the same time accelerating inflation. The former suggests policy easing, the latter tightening. The offsetting nature of these two forces, therefore, led the Bank to opt for unchanged rates today - but we would not be surprised to see at the least a discussion of (and possibly votes for) all three options this time: cut, hike, unchanged (the minutes are published in just under two weeks' time).

"Eventually, as growth begins to bite into inflation next year, we see the MPC lowering rates (to 4.5 percent by mid-2009)."

VICKY REDWOOD, UK ECONOMIST, CAPITAL ECONOMICS

"It was no surprise -- obviously everyone expected the MPC to keep rates on hold. Although we've had some pretty dire news on the economy in the past few weeks, the MPC's hands are still by tied by the strength of inflation pressures.

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

(COMMENTS OBTAINED AHEAD OF THE DECISION)

IAN MCCAFFERTY, CBI CHIEF ECONOMIC ADVISER

"It was of little surprise to the markets that the Bank held rates unchanged this month. The MPC needs to continue to stick to its mandate of delivering stability over the medium-term. A rate rise now would do little to influence the further rise in inflation expected in the near-term. There is as yet little sign that the rise in commodity prices has had any effect on wage bargaining and hence core inflation."

DAVID KERN, BCC ECONOMIC ADVISER

"We are not surprised by this decision. However the MPC cannot ignore the fact that the threats to growth have worsened very considerably and we face a serious risk of recession.

"If wage pressures remain muted, the MPC should consider a rate cut in the autumn."

GRAEME LEACH, IOD CHIEF ECONOMIST

"At this point in the cycle we believe it is correct to err on the side of caution with regard to inflation and leave rates unchanged. The MPC is acutely aware that if the inflation genie escapes from the bottle it will be very hard to put it back in again.

"We do not want to get ourselves into a situation whereby interest rates are cut now only to be reversed with a large increase later this year or next. Those calling for interest rate cuts now need to be aware that such a policy could result in the recession we are all trying to avoid."

LEE HOPLEY, EEF HEAD OF ECONOMIC POLICY

"For the moment the Bank should keep rates on hold as a slowing economy and moderate wage growth should keep a lid on inflationary pressures. However, if further gloom descends and the economic downturn gathers pace the Bank needs to be ready and willing to cut rates once again."