Interest rates kept frozen by Bank of England and Europe

Its Monetary Policy Committee also maintained its emergency money-printing quantitative programme at £200 billion.

The decision showed the majority of the committee is more worried about weak economic growth than high levels of inflation — even after an impressive second quarter when national output rose 1.1%.

Bank governor Mervyn King last week told MPs: "It is right to keep our foot firmly on the monetary accelerator. We cannot be confident that the recovery in demand, output and employment here in the UK will be sustained."

The City is split over the outlook for the economy and the Bank's next move. Some believe rates will start to rise in early 2011 to bring inflation — at present running at 3.2% and above the Bank's 2% target for months — back under control.

Others reckon rates will stay on hold for the next few years to stimulate demand.

There is even talk of another round of quantitative easing to drive growth as taxes rises and public spending cuts take their toll.

It reflects the split in Threadneedle Street where hawk-in-chief Andrew Sentance wants rates to rise "gradually" to the astonishment of others on the MPC.

Howard Archer, chief UK economist at IHS Global Insight, said: "Unchanged interest rates was always odds-on but the decision was probably only reached after a lively debate within the MPC reflecting the major uncertainties and risks currently surrounding both the growth and inflation outlooks.

"Indeed, the MPC is having to tread a very fine line at the moment, and the committee probably discussed the cases for both tightening and relaxing monetary policy as well as leaving it unchanged."

European Central Bank rate-setters also kept rates on hold, although president Jean-Claude Trichet said the region's economy appeared to be improving.

However, the international scene remains cloudy, with figures from the US this afternoon showing a surprise rise in US unemployment.

Tomorrow sees the publication of the crucial US monthly jobless figures, known as non-farm payrolls. These are expected to show a fall in the number in work of about 65,000, highlighting fears the US is enduring a so-called "jobless recovery."