Bank pleases manufacturers with decision to leave rates on hold

The Bank of England kept interest rates unchanged yesterday, ending days of increasingly frenetic speculation that it would act to calm the housing market.

The Bank issued no statement and analysts will have to wait for the minutes of the meeting, to be published in a fortnight's time, which are expected to show the nine-member committee split over the decision.

Although the City was divided over the outcome of yesterday's decision, there was near unanimity in forecasting that the next rise would come in May.

Michael Saunders, an economist at Citigroup, said: "The debate at the meeting was probably one of tactics ­ whether to hike in April or May ­ rather than whether rates should rise at all." Analysts said the Bank had probably decided the strength of the pound and the weakness of manufacturing outweighed the inflationary pressures from a booming housing market.

Business leaders welcomed the decision, saying the manufacturing recovery was fragile and inflation prospects were well under control.

David Frost, the director general of the British Chambers of Commerce, said: "These factors give the Bank of England plenty of leeway to let growth continue before inflation approaches its [2 per cent] ceiling. It is vital to avoid further increases until the recovery is more secure."

Financial markets reacted strongly to the decision, with sterling off half a cent against the dollar and interest rate futures up sharply.

Ian McCafferty, the chief economic adviser to the CBI, said the decision showed the Bank was sticking to its avowed policy of moving gradually to control inflation. "The high level of personal debt reinforces the case for a steady approach and business remains concerned that sterling's strength could hold back the recovery," he said.

Several members of the MPC had said they were concerned about the impact rate rises would have on indebted households, saying they would not "jolt" consumers out of their spending and borrowing habits.

But other members, notably the deputy governor, Sir Andrew Large, said rates needed to rise quickly to calm the housing market and prevent larger and more disruptive increases later.