Business leaders have welcomed the Bank of England’s decision yesterday to keep interest rates on hold, although there is widespread speculation that rates will rise over the coming months.

UK manufacturers were most relieved at the decision, claiming that the sector needed more time to recover from two years’ of falling productivity and profits.

Although most pundits were not surprised that the Bank froze rates at 3.75 per cent this month, many feel that the improving economic picture and the overheated housing market will lead to a 0.25 rise in February or March.

As reported by Startups.co.uk, the Bank’s Monetary Policy Committee (MPC), which decides on interest rate levels, cut rates to a 40-year low last July to 3.50 per cent, in order to kick-start the flagging UK economy.

Encouraging economic data since then resulted in a 0.25 per cent rise, although business groups have warned the MPC that they must not raise rates too quickly and deny UK firms “breathing space” to recover.

Ian McCafferty, chief economist at the Confederation of British Industry (CBI), said that business will be relieved that the Bank is pursuing a “gradualist” approach while the strength and extent of the recovery remain uncertain.

“Growth is still focussed on a few sectors of the economy, the mood of the consumer through Christmas and New Year is unclear, and business confidence remains relatively fragile, though it is improving.

“As the recovery unfolds, rates will need to rise further, but with inflation under control, the Bank should be in no hurry,” he said.

Graeme Leach, chief economist at the Institute of Directors (IoD), said that the Bank is almost certainly waiting for more information about the state of the economy before changing rates.

“The Bank of England is keeping its powder dry until next month. Consumers and business shouldn’t be deceived into thinking the interest rate outlook is flat, it is not.

“Interest rates are likely to rise to 4.5 per cent by the end of the year,” he said.