Reactions were mixed after the Bank of England kept the cost of borrowing at 3.75 per cent yesterday.

Analysts had expected the no-change decision after members of the Bank's Monetary Policy Committee (MPC) surprisingly cut rates last month.

However, the City remains braced for more cuts in coming months as economic conditions show signs of deterioration amid uncertainty in the Gulf.

Alex Scott, of Seven Investment Management, believed the MPC's decision showed it wanted to leave room for manoeuvre.

He said: "It seems the Bank needs to hold something back in the event of a downside surprise during any future Gulf conflict."

Roger Lyons, joint general secretary of Amicus, said: "The Bank has missed an opportunity to come to the aid of British manufacturing and services, both of which will now be under increasing pressure."

Despite the disappointment, UK manufacturers did receive a boost when the European Central Bank cut interest rates by quarter of a point to 2.5 per cent.

The British Chambers of Commerce said the Bank's decision was in the best interests of the economy.

Economists said the recent weakness in sterling had been a factor in the Bank's decision.