The decision was widely predicted by analysts ahead of the Bank's two-day Monetary Policy Committee (MPC) meeting.

Data from the UK manufacturing and service sectors showed a pick-up in activity in August, making any further cuts unnecessary, analysts said.

Retail sales did not register an improvement during August, but analysts put this down to the hot weather rather than an underlying economic trend.

Decision welcomed

The Institute of Directors backed the MPC's decision to leave rates on hold saying: "We are entirely in agreement with the MPC in their decision."

Ruth Lea, head of the IoD's policy unit said: "There are some tentative signs of recovery in the economy, and the predilection for the British consumer to accumulate debt should be a worry for policy makers."

Business now needs a period of stability to let it take advantage of the improving economic outlook and to rebuild confidence. Stephen Radley, Engineering Employers Federation

The British Chamber of Commerce (BCC) also threw its weight behind the decision.

BCC Director General David Frost said: "This decision is acceptable to business at the present moment.

"The record low interest rates we've seen lately have been a boost to business at a very uncertain time."

The Engineering Employers Federation (EEF) also welcomed the decision to keep rates on hold.

It said that against a background of fragile recovery in manufacturing, business needs a breathing space to allow tentative signs of improving conditions to take a firmer hold.

The group's chief economist Stephen Radley said: "Today's (Thursday) decision is the right one.

"Business now needs a period of stability to let it take advantage of the improving economic outlook and to rebuild confidence."

Over the past two years, the bank has primarily been concerned with injected life into the fragile economy, leading to a series of rate cuts.

But there is growing concern over the level of debt being run up by consumers.

Rise in store

Last week, MPC member Paul Tucker warned that debt-laden consumers should be prepared for higher borrowing costs ahead.

The majority of analysts now believe that the next move in UK interest rates will be up rather than down.

RBS Financial markets strategist Adrian Schmidt added: "A no -change move was expected and there is now a consensus that the next move will be up.

"The market is pricing in a rate hike by the end of this year but our view is they won't hike until February."

"I think 3.5% represents the trough for the cycle," said Stephen Lewis, chief economist at Monument Securities.