UK interest rates have been left unchanged at 4% for the 10th month in a row.

The Bank of England's decision to hold rates steady at a 38-year low was widely predicted by economists, who pointed to uncertainty about the health of the US economy coupled with nervous trading in financial markets.

We need a cut to safeguard us against a global downturn

John Monks, TUC

Although major stock markets may have steadied after steep falls and roller-coaster days in the past couple of months, the Bank did not want to deliver any shocks by raising rates now, economists said.

"The domestic economic data looks robust but the equity market still looks fragile and global uncertainties persist," said HSBC analyst John Butler.

Lower rates needed?

With inflation in check and the service sector expanding, the UK economy is giving little cause for concern, economists said.

"On purely domestic factors there is no need to cut rates at this stage," said Audrey Childe-Freeman, an analyst at CIBC Wood Gundy after the decision.

However, employers' groups and trade unions stepped up calls for the Bank to push interest rates lower to protect growth.

"We need a cut to safeguard us against a global downturn," said John Monks, leader of the Trades Union Congress.

High Street thriving

Arguments for another rate cut centre on whether the vital service sector is still flourishing.

Two influential surveys earlier this week gave a mixed picture of the sector.

One showed expansion for the eighth month in row in August, but a slower rate than before. A second report raised fears that High Street spending might have peaked.

But economists were not worried for long, pointing out that sales levels remained as good as or better than a year ago at 70% of stores.

House price rises ease

House price inflation showed the first signs of cooling in August, according to the UK's biggest mortgage lender, the Halifax.

Prices rose at an annual rate of 18.8% in August, compared with 20.8% in July.

Manufacturing remains sluggish, with a report on July industrial output on Friday expected to show a 1% fall on last year.

What next?

Economists are uncertain whether the next move in interest rates, when it comes, will be up or down.

During the spring, the Bank's governor hinted rate rises might resume around mid-year, and many economists believed a rise was imminent ahead of the July meeting of the Monetary Policy Committee (MPC).

Any such possibility evaporated just days beforehand as stock markets nosedived around the world.

Most economists now believe the Bank is unlikely to raise rates again before early 2003 and some think it might even cut them.

The MPC has considered the possibility of a cut, the minutes of its August meeting showed.