April 5 (Bloomberg) -- The Bank of England left its benchmark interest rate unchanged today, awaiting more signs of inflation pressures before deciding whether a fourth increase is needed.

The nine-member Monetary Policy Committee kept the Bank Rate at 5.25 percent, as predicted by all except eight of the 60 economists in a Bloomberg survey. The rest expected a quarter- point increase, and a majority of economists forecast the rate will rise to 5.5 percent by May.

Bank of England Governor Mervyn King said March 27 it's ``too early'' to say whether the pace of economic growth will fuel wage inflation, and a report today showed manufacturing output fell the most in more than a year in February. The bank's latest forecasts show one more rate increase will be required to bring inflation back to its 2 percent target.

``A May move is the most likely outcome,'' said Alan Castle, an economist at Lehman Brothers Holdings Inc. in London. ``As you go through the year, there's more chance the previous rate hikes will start to bite.''

Investors pared bets on an increase by the end of the first half. The implied rate on the June interest-rate futures contract dropped as much as 6 basis points to 5.71 percent after the decision. The contract, which settles to the three-month London inter-bank offered rate for the pound, averaged about 15 basis points more than the central bank's benchmark for the past decade.

The pound fell as much as 0.2 percent before rebounding to erase its earlier losses. The currency was worth $1.9729 at 12:24 p.m. in London.

Faster Inflation

The Bank of England's three increases since August have so far failed to curb inflation. Average house prices surged 11.1 percent in the first quarter, the most in two years, said HBOS Plc, Britain's biggest mortgage lender, today.

Consumer prices unexpectedly jumped 2.8 percent in February from a year earlier, the second-biggest increase in a decade, and money supply growth was close to the fastest pace in 16 years.

The bank has observed ``a noticeable rise in the number of firms that say they are now confident that they can make price increases stick,'' King said last week. That ``is concerning us.''

Severfield-Rowen Plc, the U.K. steel supplier that helped build Arsenal Football Club's new stadium, said April 3 it's passing higher prices to customers in a ``managed way.''

``Inflation hackles are up,'' said David Brown, chief European economist at Bear Stearns International in London. ``Inflation is well over target, liquidity growth is far too strong, mortgage demand is too robust and there is too much buoyancy in the U.K. housing market. Add that up and it is a recipe for higher rates.''

Global Rates

The Bank of England is raising borrowing costs along with the European Central Bank and the Bank of Japan. The ECB has increased its main rate seven times since the end of 2005, taking it to 3.75 percent last month. Japan's central bank in February doubled its benchmark to 0.5 percent.

The U.S. Federal Reserve has left its main rate at 5.25 percent since June, though Chairman Ben S. Bernanke said March 28 it still has an ``inflation bias.''

Britain's key rate may be close to a peak. King said last week the dangers posed by higher pay may be easing and the Office for National Statistics said March 20 that wage inflation slowed to the slowest pace in four months in the quarter through January.

David Blanchflower, a member of the rate-setting committee, last month voted for a rate cut, arguing that pay pressures are now ``benign.'' The other eight policy makers voted to leave borrowing costs unchanged.

Manufacturing Drop

Manufacturing, which accounts for about 15 percent of the economy, unexpectedly declined the most since October 2005 in February, the statistics office said today.

PSA Peugeot closed its factory in Ryton, England, this year and Toyota Motor Corp. has scaled back output at its plant to change over its production line to make a new model.

``We believe that 5.5 percent should mark the peak in interest rates as growth loses a little momentum over the coming months and inflation heads markedly lower,'' said Howard Archer, an economist at Global Insight in London. Still, today's decision ``may well have followed a very tight vote.''

The Bank of England, which will publish minutes of its two- day meeting on April 18, forecast in February that annual growth will accelerate to 3 percent in 2007, which would be the fastest pace in three years. The International Monetary Fund said today the global economy will probably weather a slowdown in the U.S. economy, which would ease pressure on U.K. exporters coping with the pound's surge to a 15-year high against the dollar.

``The bank was delaying the inevitable'' today, said Lehman's Castle. ``At the moment there is a small window for a further hike.''

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net. Jennifer Ryan in London at jryan13@bloomberg.net.

Last Updated: April 5, 2007 07:43 EDT