Further cuts in the cost of borrowing seem unlikely after the Bank of England decided to put a hold on interest rates - just weeks after experts had pencilled in a quarter point cut to 4.75%.

The no-change forecasts are at odds with increasingly gloomy economic data and earlier predictions for slow and steady rate reductions.

An increasingly depressing picture on the state of the UK housing market and wider economy had put a cut firmly on the map. And with a raft of data since then painting an even bleaker picture, many assumed the Bank would seek to boost the economy by trimming rates again.

The stream of inflationary figures over the past month have revealed a far sharper than expected increase in the cost of living in the UK, causing even more worries for the Bank's policymaking team.

Inflation, as measured by the Consumer Prices Index (CPI), was shown last month to have jumped to 3% in April, with rocketing energy bills and food prices causing the biggest monthly leap in nearly six years. Since then, the inflationary outlook has, if anything, got worse.

The Bank has been realistic about the prospects for inflation, with its governor, Mervyn King, making repeated warnings that he fully expects to be writing at least one explanatory letter to Chancellor Alistair Darling - required when inflation hits more than 1% above or below the 2% CPI target.

In its latest quarterly inflation report out in May, the Bank signalled that CPI could even peak as high as 3.7% this year. A survey last month showed that inflation is expected to reach 4.1% over the next 12 months, marking a substantial rise from the 3.1% expected in February, and coming as bad news for the Bank's Monetary Police Committee in its battle against inflation.

Experts have warned that the current state of the economy could result in the price of consumer goods soaring even higher. "Sustained, heightened inflation expectations would be liable to adversely affect the behaviour of price and wage setters, thereby increasing the risk of a very damaging price-wage spiral developing," said Howard Archer, chief economist at Global Insight.

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