British business leaders yesterday welcomed the Bank of England's decision not to raise interest rates, but argued that it could have done more to help stave off the threat of a "hard landing" for the economy.

The bank's monetary policy committee offered no explanation for its decision to leave rates at 7.5 per cent, pointing out that its quarterly inflation report would be published next Wednesday.

Mr Graham Mackenzie, of the Engineering Employers' Federation, welcomed the decision, but expressed disappointment that the bank had failed explicitly to rule out further rate increases.

The bank may have decided not to tighten policy because the slowdown in the internationally exposed manufacturing sector due largely to sterling's strength is spreading to more sheltered parts of the economy.

The Confederation of British Industry provided further evidence of this yesterday, when its latest survey showed retail sales growth decelerating to its slowest rate in three years. The CBI found 37 per cent of retailers reporting sales in July up on a year ago, compared with 31 per cent reporting that they were down. The net balance of 6 per cent reporting an increase is down from 19 per cent recorded in June. The survey shows spending is below normal for the time of year and is expected to remain subdued.

Sterling reached a 10-week low in the wake of the bank's decision, with analysts concluding that interest rates had probably peaked. Against a basket of currencies, sterling fell 0.3 per cent to 103.7 per cent of its 1990 value.