The Bank of England has left interest rates unchanged at 5.25 per cent.The decision came as no suprise to the money markets.
British interest rates are still the highest among the Group of Seven leading industrialised nations, but the British economy has so far shown few signs of weakness.
Instead what has emerged is a two-speed economy with booming domestic consumption contrasting sharply with a wilting, export-oriented manufacturing sector.
"The MPC has a dilemma. By cutting rates aggressively, the MPC has encouraged the dual-paced economy - strong domestic versus recession-bound traded sectors," said HSBC economist Mr John Butler.
Bank officials, including deputy governor Mr Mervyn King, have expressed concern in recent weeks about what they deem an "unsustainable imbalance" between demand and supply in the British economy and warned that household spending must slow to make way for planned hikes in public spending.