INTEREST rates are expected to stay at 4.5 per cent on Thursday as high oil prices exacerbated by Hurricane Katrina hit manufacturers, it is predicted.

Rates could remain at 4.5 per cent until early 2006 following last month's 0.25 per cent cut, forecast chartered accountants BDO Stoy Hayward.

Manufacturers across the South are feeling the full brunt of oil price hikes but "wider business confidence - particularly among service sector businesses - is stabilising".

The longer-term outlook is "positive" over the long term: "Many manufacturers believe that oil prices may have peaked, with orders set to filter through at the start of 2006."

BDO Stoy Hayward's Southampton partner Kim Hayward said: "The spike in fuel prices is no doubt having a marked effect, with manufacturers hardest hit. However, businesses are likely to withstand this challenge.

"If interest rates remain at 4.5 per cent during the next quarter, both companies and consumers will benefit from a sustained period of economic stability."

Centre For Economics & Business Research chief executive Douglas McWilliams said: "Healthy growth levels within the service sector are helping to hold up the rate of economic growth.

"However, it is looking increasingly inevitable that growth will fall short of the Chancellor's target."

The Bank of England's nine-member monetary policy committee was due to begin its two-day monthly meeting to set interest rates today. It will announce its decision at noon on Thursday.

Minutes from the meeting - which provide a useful insight into possible future rate rises or cuts - will be published on September 21.

First published: September 7