Interest rates have been held at 5 per cent by the Bank of England.

Economists had predicted the freeze but said a cut was possible next month.

The Bank now faces a delicate balancing act between controlling inflation and maintaining economic growth.

Data earlier this week revealed that activity in the services sector slowed to its lowest level since March 2003 as firms such as banks, hotels and restaurants felt the force of rising costs and a downturn in new orders.

Philip Shaw, chief economist at Investec Bank, said the decision showed the MPC remained concerned about inflation.

He said: "We are not surprised that the MPC has kept rates on hold at 5 per cent.

"While there has been a degree of poor economic news, the committee remains concerned over inflation and believes the relative weakness of sterling will provide the economy with a degree of stimulus.

"We think it is most likely that the MPC will lower rates again next month."

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