Business leaders are disappointed by the Bank of England's decision to hold interest rates at 3.75 per cent.

3.06.21pm BST (GMT +0100) Thu 8th May 2003

Director general of the British Chambers of Commerce, David Frost, said it was vital for the Bank's Monetary Policy Committee to be proactive in a sluggish economic environment.

" We understand the dilemmas facing the MPC, given the potential inflationary effects of the recent sharp fall in sterling. Nevertheless, we are disappointed that the Committee felt unable to act more forcefully, to counter the growing threat of weak domestic and external demand and worsening business prospects," he said.

Quarterly growth was well below trend at 0.2 per cent and the 'dismal' figure supported the pessimistic message in the Chambers quarterly economic survey that UK businesses were suffering.

" The consumer is still underpinning the economy. But the housing market is easing, earnings are slowing sharply, and we have not yet seen the full damaging effects of higher National Insurance Contributions."

" In these dangerous circumstances, it is vital for the MPC to adopt a flexible stance and act rapidly to counter new risks. If inflation shows signs of rising later in the year, policy can be tightened quickly.

"But in the immediate future, lower interest rates may not be sufficient to support activity on their own, and the Government may well need to take urgent action to cut the tax and regulatory"

"burden on UK businesses. "

Liberal Democrat Treasury spokesman Matthew Taylor said the bank had been unable to help business because of the imbalance in the economy.

"The Chancellor has been unwilling to act - his legacy is 500,000 fewer jobs in manufacturing since 1997 - manufacturing output is now 6.6% lower than in 2000."

"With investment plummeting and manufacturing in its worst state for a decade, Gordon Brown must set out his plans to kick-start investment and productivity."