The Bank of England's monetary policy committee (MPC) has left UK interest rates on hold at 4%, despite growing pressure for a cut.

The decision is likely to have been one of the MPC's most finely balanced ever.

Sluggish economic growth overseas and a weak UK manufacturing sector have supported the case for a rate cut.

The US Federal Reserve's decision late on Wednesday to slash borrowing costs by half a percentage point is likely to have put the MPC under pressure to follow suit.

But persistently strong growth in house prices and consumer borrowing has raised fears that a cut in interest rates could fuel inflationary pressures.

UK interest rates have now been left on hold for a full year, the longest period of interest rate stability since 1966.

Unfazed

Ian McCafferty, chief economist at the Confederation of British Industry, said UK businesses would be "comfortable" with the decision, but called on the MPC to cut rates aggressively in the event of a further deterioration in the global economy.

"Under these circumstances, a quarter-point cut in the UK would not be sufficient and the MPC should be ready to make a more radical half-point reduction," he said.

But manufacturing groups said the MPC had missed an opportunity to protect the UK from a downturn in the global economy.

"Manufacturing confidence continues to be dragged down by the deteriorating international outlook," said Dougie Peedle, chief economist at the Engineering Employers' Federation.

"Companies will find it hard to understand the reluctance to reduce rates further when overall growth in the economy is modest."

Union groups also condemned the decision, with Amicus General Secretary Roger Lyons describing it as an "industrial suicide note for export sectors and the jobs involved."

Markets steady

The financial markets took the decision in their stride, with the FTSE 100 index of leading British shares holding steady at 4,162, up 22 points on the day, shortly after the decision.

David Brown, chief economist at Bear Stearns, said the rate decision was no surprise.

"The bottom line was the fundamentals said (the Bank of England) should have waited and that's what they've done," he added.

Later on Thursday, the European Central Bank also ignored growing pressure for a rate cut, leaving eurozone borrowing costs unchanged at 3.25%.

The ECB cut rates less aggressively than its US and UK counterparts during last year's global economic downturn, citing rising oil prices and wage trends as evidence of lingering inflationary presssures.

But the ECB has been strongly criticised for failing to stimulate the flagging eurozone economy.

Last year, the MPC cut interest rates by two full percentage points to their current 40-year low, with the most recent cut coming in November 2001.

Supporters of further rate cuts say that with UK inflation running at just 2.1%, comfortably under the Treasury's target rate of 2.5%, there is little danger of triggering a spike in consumer prices.

The MPC is allowed to miss this target rate by a maximum of one percentage point in either direction.