The decision, which had been widely expected in financial markets, came against a backdrop of below-target inflation and signs of a slowdown in house prices and wages growth - two of the Bank's key inflationary worries.Its Monetary Policy Committee made no statement accompanying its decision but economists said there were increasing signs that its succession of interest rate rises between September last year and February this year seemed to be braking the economy as the MPC had hoped.

Britain's interest rates are still well above the euro zonelevel of 3.75 percent but are now below those in the US, where the Federal Reserve hiked rates to 6.5 percent last month. Economists generally expect UK rates to rise a little further this year, to around 6.5 percent, especially if the pound continues to weaken, alleviating pressure on exporters. But some are even saying 6.0 percent could be the peak in the current cycle. The pound surged to 14-year highs on the foreign exchanges a month ago but has since fallen back by over seven percent against a basket of major currencies. It showed little reaction to Wednesday's decision.

The Bank, although it wants the pound lower to ease exporters' pain, has said too sharp a fall could push up inflation by raising the price of imports and cause the MPC to raise interest rates. Few think May's fall is enough to cause a rate rise yet, however.

Inflation minus home loan costs is currently down to 1.9 percent, the lowest for a quarter of a century, and well below the MPC's government-set target of 2.5 percent.

Industry, suffering under the strength of the pound over the last three years because it has made exports uncompetitive, welcomed the Bank's decision since a rise might have put upward pressure on the currency again. "The Bank is right to avoid a knee-jerk reaction to initial signs of a weaker pound," said Ian Peters, Deputy Director General at the British Chambers of Commerce.

"Sterling remains above a level at which UK manufacturers and exporters can compete effectively and this is having damaging knock-on effects across the wider economy." Manufacturers' problems were amply highlighted earlier on Wednesday by official data showing output fell 0.2 percent in April from March, due to a slump in car production. This was the sector's fourth contraction in the last five months.

Financial markets, which had already priced in a "no change" announcement from the Bank, took the decision in their stride.

The pound remained static at around 62.8 pence to the euro and $1.523, while the FTSE 100 share index hovered around 6,500, over 40 points down on the day. Interest rate futures also moved slightly higher but are still pricing in rates at around 6.5 percent by the end of the year.

The rate decision came on a Wednesday this month instead of the usual Thursday. This was because Governor Eddie George has to attend a meeting of the European Central Bank on Thursday. The minutes of the latest meeting will be published on June 21 and will be pored over by analysts to see how the two new members of the MPC - Steve Nickell and Christopher Allsopp -- voted.