Borrowers breathed a sigh of relief today as the Bank of England held interest rates at 5.75%.
The widely-expected decision from policymakers came after a month of turmoil in financial markets and signs of easing inflation.
Homeowners have endured five hikes in interest rates since August last year, adding around #80 to a #100,000 mortgage. But despite the recent uncertainty, economists said rates could still reach 6% by the end of the year.
Retailers said the Bank had "made the right decision" to hold rates and cautioned against any further rises, saying the next move should be a cut to ease the squeeze on consumers and boost high street spending.
British Retail Consortium (BRC) director general Kevin Hawkins 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 British Chambers of Commerce added that the Bank’s Monetary Policy Committee (MPC) "should not rule out" a rate cut.
Economic adviser David Kern said: "Simply keeping rates on hold today is not enough, if the decision is interpreted as a mere short-lived postponement.
"The MPC must acknowledge that further interest rate increases should now be off the agenda, at least for the time being."
The MPC opted to wait and see at today’s meeting after global stock markets were rocked by fears over exposure to higher defaults from US sub-prime mortgages, involving borrowers with poor credit records.
This has led to a credit squeeze as more cautious lenders have hiked borrowing costs.
The MPC, which is charged with keeping Consumer Price Index (CPI) inflation at 2%, also saw the benchmark fall below target for the first time in more than a year in July.
CPI eased to 1.9% on sharp declines in food prices and furniture costs.
Even before the stock market turmoil, minutes of the MPC’s August meeting showed that most members had "no firm view" on whether rates would need to rise again.
But according to the Bank’s latest quarterly inflation report, published last month, interest rates might need to rise again to keep CPI at 2% in the long term.
Global Insight’s UK economist Howard Archer warned that the MPC was concerned over long-term factors such as firms’ pricing confidence and oil prices, and needed harder evidence of a slow-down in consumer spending before relaxing its monetary policy.
He said: "There is still a distinct possibility that interest rates could eventually reach 6%.
"While the Bank of England will obviously carefully monitor events in the credit and financial markets, this will not in itself prevent the Bank from raising interest rates further if inflationary pressures prove to be sticky over the coming months."
The MPC’s decision came on the heels of recent evidence that interest rates were hitting homeowners, as repossessions drove a 32% increase in houses offered for auction in the second quarter of the year, according to the Royal Institution of Chartered Surveyors.
The hikes have also slowed the housing market, with prices increasing by 0.4% during August - just half the pace of the previous month, according to Halifax, Britain’s biggest mortgage lender.
While the vote to hold rates would be welcomed by many debt-laden borrowers, manufacturers were also relieved by the decision.
EEF, the manufacturers’ organisation, pressed the MPC against any changes "for the foreseeable future".
A spokesman said: "Evidence from the labour market and factory gate prices suggests that there is no immediate inflation threat that requires further rate rises."