Interest rates held for fifth month

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Stagnating economic growth, record house price falls and the struggling manufacturing, construction and services sectors were not enough to cause the Monetary Policy Committee (MPC) to cut rates from their current level of 5%.

Their decision dealt a further blow to homeowners, coming as Britain's biggest mortgage lender Halifax said house prices fell at a new record rate during the year to the end of August, losing 12.7% of their value.

But with inflation currently running at 4.4%, more than double the MPC's 2% target, and expected to hit 5% in the coming months, rates are not likely to be cut until November at the earliest.

The furore over Chancellor Alistair Darling's gloomy comments on the UK's prospects has also helped send the pound plunging against the dollar and the euro, further adding to inflationary pressures.

The European Central Bank also kept rates on hold and scaled back growth forecasts for the eurozone next year, while in the US gloomy jobs figures heightened the economic concerns and hit stock markets on both sides of the Atlantic.

London's FTSE 100 Index of leading companies fell almost 140 points, or 2.5%, to 5362.1.

Global Insight's chief UK and European economist Howard Archer said: "Despite the very real danger of recession, it was always likely to prove premature for the Bank to cut interest rates, given well-above-target and rising inflation, still significant medium-term inflation risks and the weakness of the pound."

However, fears that the UK is heading for recession are continuing to grow after official figures showed that economic growth stalled between April and June. The Organisation for Economic Cooperation and Development (OECD) also predicted earlier this week that the UK would be the only major economy to fall into recession this year.

Meanwhile, the latest round of industry surveys published this week showed the UK's manufacturing, construction and services sectors all continued to shrink during August, despite a marginal improvement on July's lows.