The decision, which had been expected by most City analysts, follows concerns over the robustness of the UK manufacturing revival.

And it leaves interest rates at their lowest rate for about 40 years.

But, with retail and housing markets buoyant, observers believe a rate rise is imminent, with some forecasters putting rates above 5.0% by the end of the year.

Ross Walker, economist at Royal Bank of Scotland said: "The decision is very much as expected but it starts to get quite interesting from here on."

Inflationary fears

A report on Tuesday by the Halifax showing a record surge in house prices had fuelled fears that the Bank's monetary policy committee would be tempted to raise rates to stem inflationary pressure.

Growth in retail sales, which also tends to feed through into higher prices, has also remained strong.

But surveys on Wednesday revealing that the recovery among UK manufacturers was proving weaker than expected raised the odds of the MPC avoiding a rate rise, for now.

'Right course'

The committee's decision was welcomed by business group British Chambers of Commerce as the "right course of action".

"We hope the MPC continues to hold rates for the coming months to give our manufacturers breathing space," BCC policy chief Sally Low said.

The Confederation of British said the Bank had made the "right decision".

"The economy remains fragile despite early signs of a pick up in manufacturing," said Ian McCafferty, the confederation's chief economic adviser.

City reaction

In the City, the decision bolstered a rise in share prices.

The benchmark FTSE 100 index stood up 26.7 points at 5,015.8 - the highest level so far for Thursday - minutes after the announcement was made.