THE City believes that UK interest rates will stay on hold next week after the Bank of England said it was reluctant to spring unpleasant surprises.

A mixed set of manufacturing figures also helped to convince market analysts that the Bank was likely to pause for breath after sanctioning two consecutive increases in borrowing costs.

In a speech in Central London, Rachel Lomax, Deputy Governor, said that it was important that Bank rate decisions were as predictable as possible. “We have avoided springing surprises. I think that’s important — people are more likely to believe what we say if our behaviour is reasonably predictable.”

Moving rates gradually was also important in an environment where it was unclear how consumers would react to higher borrowing costs, the Deputy Governor said.

Ms Lomax did give warning that the Bank could not afford to ignore recent increases in house prices, echoing earlier comments made by Mervyn King, the Bank Governor.

But analysts said that the overall tone of Ms Lomax’s speech suggested the Bank was more likely to wait until next month before raising rates again.

The latest snapshot of manufacturing provided by the Chartered Institute of Purchasing and Supply also appeared to back the case for no change in rates this month.

Growth in manufacturing slowed in June, with the headline index of activity falling from 55.7 to 54.8. The consensus was for the index to come in little changed at 55.6. But the detail of the data showed prices were now creeping higher in UK industry — a sign that inflationary pressures were continuing to build.

There was also a slowdown in manufacturing growth in the US and the eurozone, figures showed. In the eurozone, the headline purchasing managers index slipped 0.3 points to 54.5, while the equivalent US index fell from 62.8 to 61.1.

Separate data showed both business investment and productivity in the UK were improving.

British business investment rose at its fastest annual pace in three years in the first quarter, official data showed. Annual growth in productivity is also at a three-year high.

CONFIDENCE HIGH IN JAPAN

Japan’s companies are more optimistic than at any time since the country’s asset price bubble burst in the early 1990s. The closely watched Tankan survey of business confidence posted its highest reading since August 1991, boosting hopes that the world’s second largest economy was finally on the road to recovery.