The Bank of England has voted to leave interest rates on hold.

The move had been widely expected, with City analysts suggesting that there would be no further rises in rates until the new year.

Business leaders welcomed the announcement that the rate will remain at 3.75 per cent.

David Frost, director general of the British Chambers of Commerce, said the decision was the right one.

"It is vital that interest rates remain low as long as possible," he said.

"There are tentative signs of a recovery in the eurozone, which should benefit manufacturers.

"But the positive results in recent business surveys have yet to translate into a growth trend in the official statistics."

Following last month's 25 basis point rise, the monetary policy committee appears prepared to take a cautious approach over the coming months.

Whilst the Bank concedes that interest rates are now on an upward path, the minutes of the November meeting revealed that rapid increases are unlikely.

"The committee also noted that, because of higher household debt burdens, there was increased uncertainty as to the strength of the response of the consumption to any given interest rate change," said the minutes.

"It would therefore be appropriate to move interest rates cautiously."

Evidence which emerged last week revealed that the recent increase, the first in over three years, did little to dampen rising house prices.

Figures from the Nationwide Building Society found that house prices have grown between 14 and 15 per cent this year.

Despite the rise in prices, a report from the Bank of England published this week pointed to a significant reduction in the number of mortgage applications.

News that demand is slowing is likely to lead to a soft landing in the housing market and will stem the need for short-term increases in rates.

However the bank remains concerned that the economy may overshoot its inflation target and appears set to take corrective action early next year.

As a result city analysts expect rates to rise incrementally over the next two years - peaking at around five per cent by 2005.

With average mortgage payments amounting to 27 per cent of household income, the bank believes it can increase rates without pushing the housing market to breaking point.

But with household debt at historically high levels the committee also recognises that acting too quickly could have a detrimental effect both on household budgets and on the high street.