The Bank of England today kept interest rates on hold amid growing uncertainty over the future course of the cost of borrowing.

The decision to delay any change to interest rates, which have been held since August 2005, was widely expected in the City, where the key debate is now over where rates will head from here.

The CBI, the employers' organisation, said that though it was not surprised by the decision, it was "slightly disappointed".

Ian McCafferty, the CBI's chief economic adviser, said: "We believe that inflationary pressures remain under control, and notwithstanding recent news, the economic outlook is sufficiently fragile to permit a small cut in rates."

However, Jonathan Said, an economist for the Centre for Economics and Business research said the case for lower interest rate now seemed "untenable" after signs that the high street, service sector and housing market were picking up.

"If oil prices jump up as quickly as they did last summer - which currently does not seem to be the case, bar any more Bolivian surprises - there might be a temptation to raise rates later in the year," he said.

The Times Monetary Policy Committee (MPC) had split three ways over its recommendation for the Bank of England’s best move, in its first such division since the panel of experts was set up 3.5 years ago.

In a three-way vote that mirrors growing City uncertainty over whether the next move in base rates will now be up or down, one of The Times panel backed higher borrowing costs, one a quarter-point cut, with the remaining seven arguing that the Bank should continue to hold rates at 4.5 per cent.

Today's decision followed strong data on house prices from the Halifax, Britain's largest mortgage lender, which showed that prices rose 2 per cent in April. The annual rate rose by 8 per cent, its highest level in 13 months.

Howard Archer at Global Insight described the Halifax figures as "a real shock that will heighten concern that prices are gaining excessive upward momentum."

He added: "The Halifax data is likely to reinforce Bank of England concern that any trimming of interest rates could further stimulate the housing market and risk send housing prices markedly higher. Indeed, the Halifax data is likely to boost belief that the next move in interest rates is up."

On the Times panel, the vote by Martin Weale, director of the National Institute for Economic and Social Research, for a quarter-point rate rise was the first by any Times MPC member for an increase in a year.

Expressing concerns over price pressures shared by members of the Bank’s own MPC, Mr Weale said that the case for "acting sooner rather than later" to raise rates was made by survey evidence that expectations of future inflation among households have leapt. This trend has raised concern that it could fuel pay demands and spark a "wage-price spiral".

Mr Weale sounded a warning that if inflation expectations lost their "anchor" to the Bank’s inflation target, monetary policy "would become very difficult".

His concern was echoed by Rupert Pennant-Rea, the former Bank deputy governor and chairman of Henderson, the fund manager. Although he backed no change in rates this month, he said that expectations of rising inflation were "a red light to cutting rates at the moment".

In sharp contrast, Sushil Wadhwani, a former member of the Bank’s MPC who now runs Wadhwani Asset Management, again voted for a cut in rates. Dr Wadhwani said that with the jobs market still weakening, the housing market losing momentum, retail sales indicators subdued and a threat to manufacturing from a rising pound, rates needed to fall if inflation was not to fall short of its target in the medium-term.

Andrew Sentance, chief economist of British Airways, said that the Bank should peg rates today but remain ready to cut "if there are signs that growth is faltering at home or abroad".

Other Times MPC members argued that the Bank’s next move would depend on whether manufacturing could capitalise on stronger global growth, allowing the economy to "rebalance" away from its reliance on the consumer. Sir Steve Robson, former Second Permanent Secretary to the Treasury, said that this was a "real issue for the UK" not far under a rosier surface.

"The jury remains out on the prospects for rebalancing and so on the economic fundamentals," he said, suggesting that the Bank could afford to wait for developments.

Sir Alan Budd, a former Bank MPC member and former chief economic adviser to the Treasury, said that a strong manufacturing survey this week offered "the first evidence that the UK is responding to stronger global growth". He agreed that the Bank should wait to see how this developed.

Diane Coyle, of Enlightenment Economics, also said that there was no urgency for the Bank to act, although "higher commodity prices and the general strength of the economy might tilt the balance in favour or an increase in rates".

Geoffrey Dicks, of RBS Financial Markets, and Anatole Kaletsky, chief economics commentator of The Times, voted for no change. Mr Dicks said that markets were likely to prove "way ahead of the game" in anticipating two quarter-point rises in rates.

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