The Bank of England today left interest rates unchanged despite growing fears of a vicious slowdown in the economy.

The monetary policy committee ignored calls for a cut, voting to leave rates at 5% for a second month. The committee has cut rates from 5.75% since December, but had been widely expected to leave them on hold today as inflation threatens to spiral out of control.

It is running at 3%, well above the 2% target, and looks set to approach 4% in the coming months, fuelled by rising food and oil prices. Economists said the Bank could not cut rates under such circumstances - even after Halifax reported house prices falling at the fastest pace for 15 years.

Trevor Williams of Lloyds TSB Corporate Markets said: "The Bank's decision to hold rates was widely expected, given the need to deal with the problem of rising inflation. Of course, the credit crisis is still a clear and present danger to economic growth, which suggests that rates should be cut, but inflation is now causing real concern.

"The worry is that worsening inflation in the months ahead could push inflation expectations up even further, making a rise in actual inflation a self-fulfilling prophecy."

If inflation rises above 3%, Bank Governor Mervyn King will have to write a second letter to Alistair Darling to explain why it is so high. King has said he expects to write a number of such letters this year. He penned the first such letter in the Bank's history when inflation hit 3.1% last year.

Philip Shaw of Investec said he expected inflation to spend as many as eight months above 3% and peak at 4.2% in September. Some have even suggested the next rate move will be a rise. But Shaw said: "Our view is that the Bank rate will remain at 5% for the rest of this year but will fall to 4.25% next. We certainly do not believe that rates will rise."

The Bank forecasts economic growth to slow to little over 1% this year, and King has said recession is possible. The British Chambers of Commerce urged the MPC to consider the whole economic outlook and not just inflation.

"We understand the critical need for the MPC to maintain credibility, but it cannot disregard the worsening threats to growth," said the BCC's David Kern.

The European Central Bank today left interest rates at 4% as it concentrated on its own inflation battle.