The Bank had not been expected to take any action this month after it raised the cost of borrowing in November by a quarter percentage point.

Last month's increase was the first for nearly four years and followed concerns that consumer debt and house prices were rising too quickly.

Some analysts are expecting the Bank to raise rates further early next year.

'Tentative' recovery

Industry bodies welcomed the Bank's move.

"It is vital that interest rates remain low as long as possible," the British Chambers of Commerce (BCC) said.

If the economy looks strong in early 2004, a further half point rise in interest rates is quite possible in Spring Graeme Leach, Institute of Directors

"There are tentative signs of a recovery in the eurozone, which should benefit manufacturers," it added.

"But the positive results in recent business surveys have yet to translate into a growth trend in the official statistics."

The Engineering Employers' Federation (EEF) urged the Bank to not rush into future rises.

"The Bank must hold off from any further increases until the economic picture has improved significantly," said EEF chief economist Steve Radley.

Mixed signals

Economic figures released this week showed positive signs in both the service and manufacturing sector.

Is November's rate rise curbing spending?

But recent surveys from both the Halifax and Nationwide showed annual house price growth slowing in November from the previous month.

And on Wednesday, the CBI's latest survey of retailers indicated that Christmas shopping had got off to a much slower start than anticipated.

"The Bank is right to adopt a wait-and-see approach," said CBI chief economist Ian McCafferty.

"We will need both Christmas shopping and New Year sales evidence to tell how customers are reacting to last month's increase."

Rises on the horizon

The Bank of England has not raised rates in December for five years, and few analysts thought it was likely to do so this year.

But the Bank is expected to raise rates further early next year, with some analysts saying it could some as soon as next month.

"We believe the MPC will raise rates again as soon as its next meeting on January 8," said George Buckley, economist at Deutsche Bank.

"However, we continue to see a more modest rise in rates next year than the market - 4.25% by year-end versus 5% market - due to higher household debt burdens."

The Institute of Directors (IoD) is also predicting a rate rise in the coming months.

"The Bank needs to wait until the New Year to assess the impact of the previous rate rise," said Graeme Leach, the IoD's chief economist.

"However, if the economy looks strong in early 2004, a further half point rise in interest rates is quite possible in Spring."