An interest rate increase next month raising the Bank of England's official rate to five per cent loomed as a near-certainty last night after the Bank held the rate at 4.75 per cent.

It would have come as a shock to City markets if it had done anything else. But they have been factoring in another quarter-point increase this autumn for several weeks.

At the same time, the European Central Bank made an equally expected move to raise its key rate to 3.25 per cent, higher than at any time for nearly four years.

The ECB's president Jean-Claude Trichet came close to confirming market expectations of another quarter-point increase in December.

"I would not say anything that would correct this assumption," he said, but avoided giving any pointer either way for 2007.

The City took it all well with the FTSE 100 Index edging above the 6000 threshold for the first time since May buoyed by record levels in the US.

The Footsie closed 38 points up at 6004.5.

In the West Midlands, Ian Smith, chief executive of the EEF in the region, welcomed the Bank's no-change decision, insisting that the case for another rise remains unproven.

"In a week when reports have indicated manufacturers' profit margins are half the level of 12 months ago, a rate rise would have been particularly unwelcome," he said.

"There are some signs that the biggest drivers of the recent increase in inflation are set to ease over the next year. So long as this remains the case, the Bank can afford to keep its powder dry."

John James, chairman of the Institute of Directors West Midlands said: "I am sure that Midlands companies are heaving a sigh of relief that there has been no change, but it is just a question of pain deferred," he warned.

"They are going to have to gear themselves up for an interest rate rise before the end of the year and almost inevitably another one before next spring."

John Kelly, a partner at the accountants Begbies Traynor and West Midlands president of the Institute of Chartered Accountants, was equally cautious, remarking: "I suspect a rise will definitely happen next month as it is almost being driven there by market expectations.

"This is not good news for the manufacturing sector in the Midlands, which has also been hit by high energy costs, which although they are moderating now never seem to come down as fast as they went up."