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HOPES for a cut in interest rates were dashed yesterday after the Bank of England kept the rate at five per cent.

Members of the Bank's Monetary Policy Committee (MPC) had been under pressure to make a fourth cut in six months following a flurry of poor economic news.

City economists said they expected the next cut to be made next month, with policymakers reluctant to do so yesterday because of fears that oil and food prices will force inflation above three per cent.

The decision to keep the rate at five per cent was said to be "unsurprising" by business leaders in the North-East, who said they hoped for a cut in the near future.

Sarah Green, regional director of the CBI, said: "The latest data shows the economy is slowing, albeit only gradually, and at the same time inflationary pressures continue to mount. So, the Bank faced a difficult decision, but it is no surprise that rates were kept on hold this month."

Richard Bottomley, president of the North- East Chamber of Commerce, said: "The Bank has had to handle conflicting issues - cut rates to maintain strength in the economy, or freeze them to keep a handle on inflation. It has clearly decided that, at this point, keeping a lid on inflation is the key priority.

"However, it seems inevitable that a cut be made in the very near future."

Data earlier this week revealed that activity in the services sector slowed to its lowest level since March 2003 as firms such as banks, hotels and restaurants felt the force of rising costs and a downturn in new orders.

There was also a shock fall in manufacturing output in March, with a 0.5 per cent decline surprising analysts who had forecast manufacturing production to remain unchanged during the month.

12:43pm Friday 9th May 2008

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