The Bank of England has left interest rates on hold at 4.75 per cent.

Following a two day meeting of the monetary policy committee, the decision was announced at midday on Thursday.

Most City observers had expected rates to be held at their present levels as MPC members wait for further evidence on the direction of consumer spending and the housing market.

December's meeting had seen a unanimous decision to leave rates unchanged, but a poll by Reuters has found that the majority of city economists expect a further rise at some stage this year.

Reacting to the decision, CBI chief economist Ian McCafferty said it was "no surprise".

"The economy has slowed in recent months in response to rate rises, but it is difficult to gauge from the Christmas period the likely pace of activity through to the summer," he said.

"The Bank is having to juggle the emergence of inflationary pressures, driven by a tight labour market and buoyant commodity prices, against the risk of an over-abrupt slowdown in consumer activity.

"Interest rates are likely to remain on hold for sometime."

Caution

Graeme Leach, chief economist at the Institute of Directors, said: "We expect the Bank of England to proceed with caution over the next two months, but one further quarter point interest rate rise in the current cycle is still possible.

"Although latest figures show household lending and earnings growth are strong, the UK economy may appear temporarily weaker than it really is in January-February.

"Firstly, because the impact of the tsunami may dampen consumer spending for a short time - less because of the amount of charitable giving and more because of a reluctance to display conspicuous consumption.

"Secondly, due to the growth in online consumption which may fall outside officially recorded figures and retail surveys."

The TUC's chief economist, Ian Brinkley, said the MBC had made the right decision.

"There are no inflationary pressures threatening the UK's economic stability," he said.

"But industry is still not having a good time. In the past 12 months, 112,000 jobs have been lost in manufacturing.

"If 2005 is to be a better year for the sector, the next interest rate shift must be downwards."