The Bank of England is stuck in an unavoidable "wait-and-see" mode, the City believes, after the monetary policy committee again held interest rates at 5%.

In a bind of soaring inflation - the cost of living has risen outside the Bank's targets - cratering consumer confidence and the risk of recession, few doubted the MPC would do other than continue to sit on its hands.

But the City was immediately awash with speculation about where rates might go next, especially after Halifax housing data out earlier revealed the worst quarterly crash in prices - down 5.5% - on record.

"I can't think of a better example of what it means to be stuck between a rock and a hard place," said Stuart Porteous ofRoyal Bank of Scotland. "Until a stronger case can be made for a decisive move in either direction, the MPC will do what it has done today - keep rates on hold."

Howard Archer of Global Insight said: "The Bank was always likely to keep rates at 5%, given the current horrible mix of markedly slowing economic activity and rising price pressures.

"There could well have been a three-way split in the vote, and the future path of rates is currently highly uncertain as the Bank faces its most challenging economic environment since the early 1990s.

"The Bank of England is currently very much in 'wait and see' mode and we believe it is most likely that rates will stay at 5% for many months to come, as very weak economic activity increasingly contains and then dilutes underlying inflationary pressures.

"Further out, we expect interest rates to be cut significantly in 2009 and to come down to 4% as the economy will be essentially stagnant in the second half of this year."

James Knightley at ING said: "We don't see inflation peaking until the fourth quarter of 2008, with the Consumer Prices Index likely to hit 4.5% - more than double the official target rate.

"With the Bank worried about a potential wage-price spiral developing, the scope for monetary policy easing is limited.

"Lower rates of inflation next year will allow the Bank to respond to the recession threat in early 2009 with rates set to be cut aggressively towards 3.5% by midyear."