The Bank of England yesterday declined to implement consecutive monthly cuts in benchmark UK interest rates, with inflation fears likely to have led to it staying its hand in spite of signs that economic growth is slowing sharply.

The Bank of England yesterday declined to implement consecutive monthly cuts in benchmark UK interest rates, with inflation fears likely to have led to it staying its hand in spite of signs that economic growth is slowing sharply.

However, many economists expect the Bank's Monetary Policy Committee will have to cut base rates in June, as the growth outlook continues to deteriorate.

Financial markets had been pricing in about a 25% chance of a cut in rates yesterday, just ahead of the end of the MPC's latest two-day monthly meeting at noon, with a weak UK service sector survey and poor manufacturing data this week having raised hopes the committee might just move.

However, the nine-strong MPC stood pat on base rates at 5%, in what is almost certain to have been a split vote.

MPC dove David Blanchflower is almost certain to have voted for a further cut in base rates yesterday, having pushed unsuccessfully for a half-point move at the end of an April 9 and 10 meeting which saw a reduction from 5.25% to 5%. Fellow external MPC members Tim Besley and Andrew Sentance had opposed last month's cut, preferring no change.

The MPC has cut UK base rates by a quarter-point three times so far this cycle, with the other reductions implemented in December and February.

Further clues on the interest rate outlook will come next Wednesday with publication of the Bank of England's latest quarterly inflation and growth forecasts. The split of yesterday's vote will be revealed with publication on May 21 of minutes of the MPC meeting.

The MPC's no-change call yesterday brought a mixed reaction.

The Scottish Council for Development and Industry, the member-funded lobbying organisation, welcomed the move.

SCDI chief economist Iain Duff said: "This is the right decision, with the committee having to balance inflationary pressures against slowing growth.

"The MPC also has to take into account the impact of the strength of the pound. Whilst the weakness of sterling is a help to exporters, it stokes inflation by pushing up the cost of imported goods such as food."

However, the British Retail Consortium said "the Bank of England's decision to leave interest rates unchanged heaps more pressure on businesses and (on) individuals' personal finances".

Liz Cameron, chief executive of the Scottish Chambers of Commerce, hoped for further cuts in interest rates soon but highlighted surging energy prices as an issue which was becoming a bigger problem for businesses than the cost of borrowing. She said: "This decision by the MPC was not unexpected, but we hope that interest rates will continue on their downward path again soon. However, it is the rising cost of energy which is rapidly becoming the number one economic concern for Scottish businesses.

"At a time of year when businesses should be expecting energy prices to fall back, record oil prices are resulting in energy bills rising rather than falling. Indeed, one of our member businesses has reported a £100,000 per month price rise for their gas consumption, adding further pressures on (profit) margins at an already economically challenging time."

Oil prices have been hitting fresh all-time highs on a daily basis. Benchmark Brent crude hit a fresh record peak of $123.79 a barrel last night. US light crude, which had settled up 16 cents on the session in New York at $123.69 a barrel, hit a new all-time high of $124.61 in after-hours trading last night.

Stuart Porteous, head of group economics at Royal Bank of Scotland, highlighted the fact that benchmark annual UK consumer prices index inflation was, at 2.5%, well above the MPC's 2% target as he took yesterday's rate decision in his stride.

Touching on the Bank of England's £50bn-plus scheme to allow commercial banks to swap the likes of untradeable mortgage-backed securities for Treasury bills to boost liquidity and aid the functioning of credit markets, Porteous said: "It's no surprise that the MPC kept rates on hold. Policymakers will want to wait a little longer to assess whether the Bank of England's new lending facility is easing the liquidity squeeze. Inflation is also still above the 2% target.

"Nevertheless, business activity is clearly slowing, while the headwinds facing households from higher food and energy prices and a cooling housing market are intensifying. We expect rates to be lowered in the months ahead to help achieve a soft landing."

The European Central Bank yesterday held benchmark interest rates in the 15-nation eurozone at 4%, and Jean Claude-Trichet, its president, signalled he was in no hurry to cut.