The Bank of England has kept interest rates unchanged at a 40-year low of 3.5 per cent.

The monetary policy committee announced its verdict on Thursday to little surprise after economists had widely predicted the hold.

Many had expected the committee to keep rates at 3.5 per cent following July's quarter point cut that sought to counter fears the economy is stalling.

Since then there has been a run of good news for the chancellor with a series of positive economic indicators.

While manufacturing industry has rebounded on both sides of the Atlantic, Britain is also enjoying a renewed surge in house prices, and house building activity has also picked up.

The engineering sector, which has been particularly hit by the recession in manufacturing, revealed earlier this week that firms predicted that the sector was set for the fastest growth in five years.

A survey of purchasing managers in the manufacturing sector saw its best performance in 15 months during August, with its second month in a row of rising overall activity.

And Halifax, Britain's biggest mortgage lender, has released figures showing an average rise in house prices of 1.3 per cent in August, following July's 1.4 per cent increase.

Its report concluded prices had risen on average by 1.1 per cent a month since June - almost double the 20-year average of 0.6 per cent.

Business leaders described the latest move as "acceptable", while warning against any imminent rate rises.

"We are reassured by the fact that the monetary policy committee voted unanimously at its last meeting to hold rates unchanged," British Chambers of Commerce director general David Frost said.

"We urge the MPC to keep the interests of business at the heart of its deliberations in the coming months: inflation is under control and there is scope to keep rates at their record low level for some time to come."

CBI chief economic adviser Ian McCafferty added: "No one in business will be surprised by this decision now the economy seems to have shrugged off some of the sluggishness that has dominated this year.

"But the Bank should be under no illusions about the continued fragility of the economy. This is going to be a long haul and it will take time before we can be confident of a sustained and balanced recovery.

"Firms will want the MPC to be cautious in any discussions about the next rise. Poor timing could choke off a recovery before it has gathered sufficient momentum."

Liberal Democrat Treasury spokesman Matthew Taylor said the MPC was having to cope with two problems.

"The Bank is torn between tackling runaway consumer debt on one hand and sluggish business investment on the other," he said

"Interest rates alone cannot rebalance the economy. The government must start slashing through Gordon Brown's red tape and tax complications that hold business back. Britain can't borrow its way out of trouble forever."