James Emmett, HSBC branch manager for Swindon, casts his eye over the current economic climate.

The fact that the Monetary Policy Committee (MPC) opted to leave base rates on hold at its May meeting should not be taken to mean 'more of the same' as far as the general economy is concerned.

Since the April meeting, the Iraq war has been winding down, sterling has been heavily traded on the foreign exchange markets and mixed signals have emerged from the domestic economy.

Given these cross-currents, the decision to leave rates at 3.75 per cent was unlikely to have been unanimous.

When trying to interpret the interest rate decision, it should be remembered that the primary responsibility of the MPC is to meet the inflation target set by the Chancellor.

Although this has been comfortably achieved in the last couple of years, it cannot be taken for granted and there is a need for constant vigilance.

Despite worries about the stagnation of the main eurozone economies, the weakness of domestic manufacturing production, and fears that house prices may be about to fall, the case for cutting rates in May was far from compelling.

The depreciation of 7 per cent in sterling's trade-weighted value during the first four months of this year is good news for exporters. But it also raises inflation worries because our imports become more expensive.

This, taken in conjunction with the recent hike in Council Tax payments will keep inflation well above the 2.5 per cent target for some months to come.

At the same time, recent evidence suggests that consumers are still doing their bit for the economy. Consumer credit has continued to expand and high street spending in March was more than 4 per cent up on the previous year, while the key survey of consumer sentiment showed a rebound in April.

These developments suggest that the downward pressure on inflation which was expected to feed through from a softer consumer environment will be delayed.

But it was probably the slide in sterling which was pivotal in the MPC's deliberations. The recent fall stems from a growing nervousness in financial markets about the risks facing the UK economy. The most potent of these are fears of slowing growth, the high level of personal indebtedness, and the vulnerabilities surrounding the housing market.

Cutting interest rates against this background of currency volatility would have been a high-risk strategy.