Many commentators had forecast a rise to 5.5% but the Bank's Monetary Policy Committee (MPC), which sets the rate, decided that there were good reasons to avoid an increase.

The MPC members voted by a majority of 5-4 to maintain the rate at 5.25%, suggesting a near-even split in sentiment.

Four members of the MPC wanted a 0.25% increase and the MPC said the decision to hold rates was "finely balanced."

The MPC said there were signs of weakening economic activity but consumer confidence was holding up and the labour market was relatively tight. The Bank's target remains to reduce CPI inflation back to the target of 2% and the MPC noted the recent reduction in CPI and core inflation as moves in the right direction.

There had been growing speculation that the Bank's Monetary Policy Committee would pause increases after a surprise dip in CPI from 6.8% to 6.7% announced yesterday.

Many commentators believe that the base rate is now at or near a peak but much will depend on the rate and trend of inflation and further increases have not been ruled out. 

The pause follows the shock increase in the Bank of England base rate of 50 basis points to 5% in July, twice the increase expected. The base rate has risen steadily over the past 18 months from a low point in December 2021 of 0.1%.

The decision to keep the rate at 5.25% will bring some relief for hard-pressed mortgage borrowers who feared further increases in mortgage rates.

The MPC said that CPI inflation is expected to fall "significantly further" in the near term, reflecting lower annual energy inflation, despite the renewed upward pressure from oil prices, and further declines in food and core goods price inflation. Services price inflation, however, is projected to remain "elevated" in the near term, with some potential month-to-month volatility.

Industry reaction to the rate freeze was generally positive.

Marcus Brookes, chief investment officer at Quilter Investors, said: “While it may return to raising rates later in the year or into next year, the Bank of England has been bold and is signalling that its job is nearly done for now.

"Inflation surprised to the downside yesterday and with economic data rolling over, the BoE clearly feels it now has enough cover to hit the pause button and assess things as we go. Market expectations of rates at or above 6% always appeared a little toppy, and clearly the data is trending in the right direction for the BoE to take this decision. With an election around the corner next year, it will be playing on the minds of the decision makers not to overcorrect and instead begin to assess what impact the action to date has had."
 
Jonny Black, chief commercial and strategy officer at Abrdn Adviser, said: “Today’s interest rate decision breaks what has been a continuous set of rises since December 2021. However, advisers and clients are far from being out of the danger zone.
 
“Millions of homeowners are continuing to battle historically high borrowing costs. And while some savers may welcome the higher interest rates of late, advisers should still stress the importance of maintaining a long-term view when it comes to their savings and investment strategies."
 
Sarah Pennells, consumer finance specialist at Royal London, said: “After consecutive interest rate rises, this is a welcome pause for borrowers. Those on a tracker rate for their mortgage will doubtless be relieved that they will not see another rise in their repayment amounts.

"However, today’s decision by the Bank of England to leave the Base Rate at 5.25% won’t help people whose current fixed rate mortgage is near its end, as they’re likely moving off a rate that was cheaper than the new fixed rate deals available. For some, these higher repayment amounts will be unaffordable or a huge stretch on their finances.
 
“Although savings rates have been getting higher, with best buy easy access accounts paying over 5%, they have not kept pace with the rises in the Bank of England base rate.”

• The next base rate announcement will be on 2 November.