The Bank of England has explained why it did not cut the cost of borrowing in the light of the turmoil on world credit markets and July's abrupt fall in the rate of inflation.

It is the first time for many years that the Bank has made any comment on a no-change decision.

At the European Central Bank, which also left its headline rate unchanged - at four per cent - Jean-Claude Trichet, the ECB's president, pointedly refrained from repeating his warning last month about "strong vigilance" on inflation, which had been taken as a signal that the ECB would raise its rate wither this month or next.

The Bank of England stressed that its mandate is to set interest rates to meet the two per cent target. So its monetary policy committee discussed the disruption in money markets and other economic data "in terms of the implications for inflation", in effect ruling out any move to widen its remit and try to stabilise the markets.

It acknowledged that inflation as measured by the Treasury's chosen consumer prices index fell back to 1.9 per cent in July "and may remain around, or a little below, the two per cent target for the next few months.

"Pay pressures remain muted," it added. "There are tentative signs of a slowing in consumer spending.

"But the recent solid pace of output growth has been sustained and the margin of spare capacity appears limited. Indicators of pricing pressures remain somewhat elevated."

It is too soon, the Bank said, to tell how far the disruption in financial markets will squeeze the availability of credit to companies and households. It promised only to keep a close watch on these and "all other data relevant to the outlook for inflation".

Outside commentators on the decision refrained from criticising the Bank for failing to cut its rate here and now.

"The economy is at an important juncture," said Chris Clifford, the CBI's West Midlands regional director. "Growing signs of moderating activity, and the uncertainty about the impact of the squeeze in money markets have left the Bank with some difficult issues to ponder.

"High street retailers have had a disappointing summer, household budgets are under pressure, and the recent markets turmoil is another reason for caution. A rate rise today would have been poorly signalled and unwise.

"July's surprisingly sharp slowdown in inflation has taken some of the force out of any argument to increase rates again. A long period of stability is what the economy now needs."

Ian Smith, chief executive of EEF West Midlands also went no further than a call for interest rates to stay where they are for some time.

"Our own business trends survey released earlier this week showed a fall in the number of companies planning to raise prices," he pointed out. "Combined with evidence from the labour market and factory gate prices, it suggests that there is no immediate inflation threat that requires further rate rises.

"The UK economy continues to show it can combine healthy growth with low inflation."

At the British Retail Consortium, director general Kevin Hawkins, a consistent advocate of cheap money, was more forthright.

"This is the right decision," he said. "With clear evidence that previous rate rises and higher living costs are now squeezing disposable incomes and undermining retail sales, another rise would have piled on pointless pain. The Bank should be looking to make its next move a rate cut."

But Roger Bootle, economic adviser to Deloitte, warned "There is still a fairly good chance that interest rates will be raised to six per cent before the end of the year".

He noted "Inflation expectations, money supply growth and most survey measures of businesses' selling prices remain uncomfortably high".

Howard Archer, an economist at Global Insight, agreed, with reservations. "There is still a very real possibility that interest rates will eventually reach six per cent," he said.

"Strong survey evidence for August relating to the service sector and manufacturing indicate that the economy currently continues to perform relatively well, while the Bank of England clearly still has some significant concerns about medium-term inflation risks, most notably stemming from possible capacity constraints and companies' pricing power.

"On balance though, we now no longer expect interest rates to rise to six per cent in the fourth quarter, but instead anticipate that the Bank of England will sit tight for an extended period."