THE Bank of England left interest rates on hold for the sixth consecutive month yesterday - despite mounting evidence of a stronger economy.

Business leaders and homeowners welcomed the Monetary Policy Committee's (MPC) decision to freeze rates at 4.75 per cent, a move widely forecast by economists.

But experts predicted there may be room for one further tightening in the cost of borrowing in the next six months if economic data continues to strengthen.

Inflation has been rising towards its two per cent target faster than expected, moving up to 1.6 per cent in December - its highest level in six months.

Adding to the picture of a strengthening economy were the official manufacturing figures for the past quarter, which were revised upwardly, meaning the sector escaped a fall into recession.

Some analysts said they believed rates would remain at 4.75 per cent for the rest of the year - but one more rise was possible in six months.

The economy has grown faster than expected in recent months, with GDP rising by 0.7 per cent in the last quarter, higher than estimates of 0.5 per cent.

The MPC is trying to balance this with other data, including figures showing retailers had their worst Christmas in 20 years.