Bank of England holds rates as it waits for George Osborne's emergency Budget

Interest rates were today held at 0.5%, where they have been since March last year.

The Bank of England's monetary policy committee made the announcement, widely expected by the City, at noon. It also made no change to its £200 billion quantitative easing programme.

Both decisions had been expected with most analysts predicting rates will not rise until at least the end of this year.

The committee has not changed its policy since November and was seen as unlikely to make a move to increase rates ahead of an emergency Budget on June 22.

Eurozone interest rates were kept on hold at their historically low 1%.

Rates may stay at record lows to offset the £6.2 billion government spending cuts announced so far, as well as more of the likely pain ahead, and prevent the UK sliding back into recession.

IHS Global Insight economist Howard Archer said: "The Government's plans will become a lot clearer in the emergency Budget to and this will undoubtedly play a major role in the Bank of England's thinking on how monetary policy pans out over the coming months.

"Even if the bulk of fiscal tightening does not start until 2011/12, once people know more details of what is coming it could very well have a dampening impact on their behaviour."

Archer predicted rates to stay at 0.5% into next year, although the Organisation for Economic Co-operation and Development has said the Bank should wait no longer than the final quarter before moving and expects interest rates to reach 3.5% by the end of 2011.

The MPC is having to weigh up a fragile recovery and the debt crisis hitting the EU against risking the return of inflation if rates stay low for too long.

The cost of living hit a 17-month high of 3.7% in April, although Bank Governor Mervyn King believes it will fall back to its 2% target "within a year".

In an open letter to the Chancellor, the governor blamed high oil costs, a weaker pound and the rise in VAT to 17.5% in January for the consumer prices index being higher than expected over the past year.