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The decision made by the Bank of England's monetary policy committee (MPC) to hold interest rates at five per cent was 'understandable', the British Chambers of Commerce (BCC) comments.

According to the trade group, the MPC was forced to make the decision in order to maintain its credibility.

However, the group claims the UK economy is most likely to already be in recession, meaning the lack of a rate change could further heighten the problems facing both businesses and the housing market.

David Kern, economic adviser to the BCC, warns: 'There are distinct risks that the situation would worsen. A major recession can still be prevented if prompt action is taken.'

The BCC believes that the MPC should ensure it cuts rates as soon as a reduction in the rate of inflation enables it to do so.

Yesterday, the Bank of England chose to maintain interest rates at five per cent, choosing to keep the level constant as cutting rates would further fuel inflation from its rate of 4.4 per cent.

It has not changed the base rate since April when it was reduced from 5.25 to five per cent.

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