It feels good to get it right! As we predicted, the MPC did indeed maintain interest rates at their current level of 6%, where they have stayed firmly lodged since February 1999. This decision was possibly the most publicised and talked about of any during that period of stability. Why? Because the US have just slashed their interest rates by half a percent and influential figures in various quarters vocally encouraged the MPC to follow suit. But it wasn't to be, and we look at some of the reasons that may have contributed to the 'non-decision'. We then hear the views of some of those campaigning for a rate reduction and finally, we take a look at some of the predictions for what will happen to the economy and the housing market over the coming months.

Despite the recent concerns over the so-called collapse of the new economy and the knock-on effect of a US slump, the economy is in pretty good long term shape. According to a leading think tank, Cambridge Econometrics, growth is likely to exceed 2% in 2001, the ninth year on the trot that this has occurred. This is unprecedented in the last 30 years. Unemployment is low and inflation is below government targets - and has been for some time.

All of this builds an environment which could lure the government to take a few 'risks' with the economy, in a bid to win votes in the run up to a General Election. Increased spending and reductions in taxes are both commonly used electioneering tools, both of which have potentially inflationary effects. Chancellor Gordon Brown has already pledged his commitment to tax cuts for pensioners and families with children, with further cuts possibly in the pipeline to sway key voter groups.

This should be fine as long as the economy is slowing. But if the economy remains healthy, overspending by the government could lead to increased household expenditure and borrowing, with the knock-on effect being rising inflation. As the CEBR pointed out in it's recent newsletter, "As government spending picks up, a further increase in interest rates may be needed so that household expenditure growth slows down."

Further inflationary pressure could come from the job markets, where unemployment is at very low levels. A fresh round of bonuses and wage increases will have a bigger effect on the economy than in times of high unemployment, as more people will benefit from the increase in disposable income.

The strength of Sterling is another factor that has a large impact on inflation, which the government is keen to keep at a stable and low level. Many economists feel that there is plenty of room for a sharp fall in Sterling. It has gained recently against the dollar and is substantially higher against the Euro compared to this time a year ago. If the euro continues to strengthen - as many people feel is likely - Sterling would be likely to weaken against the currency. This would mean that British exports would become more competitively priced, providing a great boost for manufacturing, but also adding fuel to the inflationary fire.

This complicated set of dependencies means that the government and the MPC must think extremely carefully about the repercussions of it's decisions - a view that was reinforced by the Institute of Directors. A spokesman for the group, one of the few bodies to come out publicly in support of keeping the rates where they are, said, "The MPC has made the right decision today. Even though we see interest rates easing this year in response to a slowing economy, we believe that a cut today would have seemed too much like a panic reaction to last week's US cut."

Manufacturers have been long been urging the government to take steps to improve the environment for British exports. The strong pound has been blamed for the cessation of car production at various major plants across the UK, with BMW, Ford and Vauxhall all closing factories. A cut in interest rates would lead to a lower demand for Sterling across the world, as other currencies would become more attractive. This would bring a relative reduction in the price of British goods on the world markets and therefore boost British manufacturing exports.

Further pressure for a rate cut has been mounting as a result of the 'global slowdown', which has been in the news a lot over the past weeks. The US economy has been struggling for some time, and historically, the UK economy has reflected what has been going on in America. The government has predicted that the UK's growth rate will slow from 3.0% in 2000 to around 2.5% in 2001. The worry is that the fallout from the US slump could amplify the UK slowdown, causing growth to grind to a halt and raising worries over a recession. This would not be the ideal circumstances in which to hold an election and would be viewed as a reversion to the boom and bust cycle - something else that the government is trying hard to avoid.

Worries about the short term future of the economy in this country are leading to what some observers are calling a crisis of confidence. Low confidence in an economy can lead to a lack of investment and a lack of demand - problems which can easily spiral out of control. A rate cut would have provided a timely boost according to Kate Barker, Chief Economic Adviser for the CBI. She said that, "many businesses will see this as a missed opportunity to make a pre-emptive strike that would have eased concern about the impact of a global economic slowdown." She went on to argue that, "there is a real need to maintain confidence and encourage firms hesitating over investment plans."

This view was echoed by Dr Ian Peters, Deputy General for the British Chamber of Commerce. He also claimed that there is now enough slack in the economy to cut rates without inflation rising above the governments target, a sentiment that the CBI also shared. He said, "With highly competitive conditions at home and abroad keeping prices in check, the Bank had room to reduce interest rates without jeopardising its inflation target. A quarter point cut sooner rather than later is needed to reassure business and investors that the Bank is committed to supporting growth in the UK."

Many of those working within the housing market - which has been fairly depressed over recent months - have also come out in support of a rate cut. Such a move could help revive the market by making mortgage payments cheaper, though the government will not be too keen to do much to encourage the inflation-causing rampant growth in property prices which occurred in the early part of last year.

The National Association of Estate Agents felt that the Bank of England's decision to hold interest rates at six per cent was 'disappointing'. Chief executive of the organisation, Hugh Dunsmore-Hardy, had this to say: "There are now enough properties on the market to meet demand and the rate of house price increases has slowed down dramatically. With all the indicators suggesting that during 2001 house prices will be more closely aligned to inflation and wages, the time has come to take some of the pressure off the economy in order to allow the property market to grow at a sustainable rate."

It seems extremely likely that the MPC will take the decision to reduce rates by a quarter percent in February, so long as the US does not display a rapid recovery. The financial markets are certainly placing their bets on a rate cut by the end of March, and if the current climate doesn't change, then the pressure next time round may be just too much for the committee to bear. We will have a much better idea later this month, when the minutes of the meeting will be released. Last time round, two members voted for a rate cut, and if the vote was closer this month, then it is a sure sign that a cut is on the horizon.

In the longer term, almost every observer is in agreement that interest rates are set to come down from their current level by anything up to half a percent by the end of the year. Some, such as Cambridge Econometrics and the Centre for Economic and Business Research feel that there may be a need for a temporary rise, especially if household spending starts to grow too quickly, or if Sterling falls too far too fast. However, besides the CEBR, there are very few who believe that this will be a long term move.

Despite being in favour of keeping rates on hold, the Institute of directors expects the bank benchmark figure to fall to around 5.5% by the summer and as low as 5% by the end of the year. We have not come across any serious commentators who are predicting larger falls than this.

If the economy remains stable, then house prices should show an average growth of around 5 or 6 percent over the course of 2001. There will of course be regional variations and localised hotspots as is always the case.

The Council of Mortgage Lenders (CML) forecasts house price increases to remain steady at "around three percent above inflation", putting the growth rate at 6% this year, and 5% for 2002. This is a figure which is also quoted by the National Association of Estate Agents, who unlike the CML, also claim there will be a reduction in the number of transactions. This is put down to the probability of an election, and the fact that in election years, "both buyers and sellers wait to see who wins and how they then set about meeting their manifesto promises,"

Despite claims from the CML that competitiveness in the mortgage market and low interest rates have kept home buying an affordable option, Halifax claims that some markets need further price corrections. The South East in particular is likely to be slightly subdued. This is because prices have risen by such an extent over the last few years that they must surely slow down in order to allow relative earnings levels to catch up. Meanwhile the North-South gap could be further narrowed by regionalised price rises if economic conditions in some industrial areas continue to improve. This is in no small part dependent on the broader economic conditions and the strength of Sterling.

A constant commentator on the housing market, the Royal Institute of Chartered Surveyors feels that it is still difficult for first time buyers to enter the market. It claims that this has helped peg back excessive demand, and along with steady growth and consistently low inflation, has helped contribute to an unprecedented stability in the market. Like many of the other industry groups, it also predicts a growth rate of around 6 percent for this year.

One of the more conservative views is held by the CEBR, who envisage an overall growth rate of 5% for the year, with much of those gains coming in the mid to later stages. This figure will probably be revised if the bank cuts rates by more than the quarter point that it expects in the first quarter. Such a calm level of growth will not be experienced by all homeowners, with some losing out altogether, whilst hot spots may again experience the dizzy heights of double digit growth.