The Bank of England’s Monetary Policy Committee (MPC) has kept the cost of borrowing unchanged at 4.5 per cent today following last month's decision to cut rates by a quarter point.

The decision was widely expected amid mixed economic data and the spectre of higher inflation, and had little impact on the markets.

GDP growth in the second quarter was recently revised up to 0.5 per cent from 0.4 per cent but consumer spending remains subdued. At the same time, surveys on the state of the housing market remain mixed.

The latest snapshot of conditions from the Halifax showed prices rising at their fastest for nearly a year. But the the latest survey by Nationwide contradicted this by saying average prices fell by 0.2 per cent in August.

Meanwhile sky high oil prices, which have risen by 65 per cent this year, have pushed inflation above the Bank's 2 per cent target.

Last month, the MPC cut interest rates for the first time in more than two years but the vote was finely balanced, with the four independent members of the panel joining with Charlie Bean, the Bank of England’s chief economist, in favour of lower borrowing costs.

Against them were four Bank officials, including the governor Mervyn King. It was the first time since the creation of the MPC that the governor had been in the minority.

The tightness of the vote and the Bank’s hawkish Inflation Report released last month has led most economists to predict that interest rates are unlikely to fall again this year.

Andrew McLaughlin, chief economist at the Royal Bank of Scotland, said: "The nascent recovery in domestic demand is neither strong enough to warrant an immediate reversal of the August cut, nor weak enough to prompt back-to-back rate cuts.

"Interest rates should be on hold for the rest of the year, although one more cut may be needed in early 2006 to bring the economy back to trend growth."

Howard Archer, chief economist at Global insight, said today’s decision was one of the most predictable outcomes ever.

"The committee has made it clear that it is currently in no hurry to cut rates further. Indeed, some MPC members are clearly far from convinced that any further interest rate cuts will be needed as they believe growth is likely to pick up over the coming months and could add to inflationary pressures," he said

"We are more pessimistic than the Bank of England about growth prospects, and believe that further below-trend expansion and a modestly softening labour market will increasingly alleviate underlying inflationary pressures, notwithstanding persistently strong oil prices.

"We still lean towards the view that there will be another 25 basis point interest rate cut to 4.25 per cent before the end of the year, although we accept that this could be delayed until early 2006."

Today’s decision by the Bank was supported by The Times’ shadow MPC, which voted by eight to one to keep rates unchanged at 4.5 per cent.

Only Sushil Wadhwani, a former member of the Bank’s committee, who now runs a City investment firm, pressed for a further quarter-point drop in base rates.

Mr Wadhwani argued that the Bank’s views, in last month’s quarterly Inflation Report, were too optimistic over business investment and the potential boost to growth from higher share prices, while consumer spending indicators remained "subdued".

The repercussions of Hurricane Katrina would further slow the world economy, he argued, while "in particular, the August cut will have little effect if it is seen as the only cut in this rate cycle".

Although the rest of the panel supported the Bank’s decision, some still believed that there might be scope for further cuts in the future, most suggesting that the Bank needed time to weigh up the pressures on growth and inflation.

"The MPC will need time to see how domestic demand is moving and to think about the consequences of the recent shocks to the world," Sir Alan Budd, a former chief economic adviser to the Treasury, said.

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