Millions of homeowners and businesses have breathed a sigh of relief with the Bank of England deciding to leave interest rates unchanged at 7.25%.

Many house-buyers in Britain have recently suffered increases in the cost of their mortgages following five rises since the May 1 General Election.

The Bank of England's Monetary Policy Committee announced the decision after its monthly two-day meeting to set rates.

Although the announcement had been widely predicted, some experts believe interest rates will have to be increased at least once during 1998 to avoid the economy overheating.

Interest rates were first raised by the Chancellor Gordon Brown shortly after Labour came to power last May, by 0.25% to 6.25%.

He handed control of monetary policy to the Bank of England shortly afterwards and the committee has since imposed four 0.25% rises.

The cost of borrowing was last raised in November, surprising many pundits, and analysts have been split over whether further increases were needed to keep inflation under control.

Conflicting signals about the direction the economy is taking have left opinion divided on how tough the Bank must be on rates.

Figures on Monday from the Purchasing Managers' Index, a key barometer of the state of manufacturing, showed sluggish growth, suggesting the economy could expand less than 2% this year.

But official figures released the next day for the supply of money in the economy, an important guide to inflation, showed an increase in December.

The Confederation of British Industry's quarterly retail sales survey shows strong sales in the Christmas period, but weak results for the last three months of 1997.

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