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Roger Bootle, Economic Adviser to Deloitte, said, "Today’s decision by the Monetary Policy Committee to leave interest rates on hold at 5.75% largely reflects the recent financial market turmoil and the sharp fall in inflation. But these developments do not mean that a further rate rise is out of the question. I think there is still a fairly good chance that interest rates will be raised to 6 per cent before the end of the year."

"The market volatility of the last month will only prevent a further rate rise if the MPC deems that it has significantly dented the outlook for activity and price pressures. Indeed, the Committee said as much in a statement released alongside today’s decision. But while some impact can be expected, I think it will be small."

"Admittedly, equity prices remain about 5 per cent below July’s peak. But the rebound in recent weeks has left them around 3 per cent higher than at the turn of the year. Accordingly, households’ financial wealth is unlikely to have been materially affected. In any case, household spending is more sensitive to changes in housing wealth, which has continued to increase as house prices have risen further."

He added, "The bigger threat is that households and companies may now find it more expensive to borrow. Indeed, three month market interest rates, which are a benchmark for some mortgage rates and corporate loans, have risen by 0.75 per cent over the last month. But money market interest rates are likely to fall back once confidence returns to the banking sector."

"In any case, the latest data suggest that the economy is in a good position to cope with any fallout from the financial markets. National Statistics confirmed that the economy grew by a solid 0.8 per cent in the second quarter. And the more up-to-date CIPS/RBS business surveys recorded a strengthening in activity in the manufacturing, construction and services sectors in August."

"What’s more, the inflation concerns that led the MPC to raise interest rates five times in the last year, and to signal in the Inflation Report published at the beginning of August that another rise was likely, have not gone away. Admittedly, CPI inflation fell sharply from 2.4 per cent in June to 1.9 per cent in July – below the 2 per cent target rate for the first time in 15 months. But inflation expectations, money supply growth and most survey measures of businesses’ selling prices remain uncomfortably high."

"Overall, if the market chaos persists and the economic data weakens, it is possible that interest rates have already reached a peak. But if the market turmoil continues to fade, the MPC will turn its attention back to the underlying economic fundamentals. And at the moment, they suggest that interest rates might yet need to rise to 6 per cent," Roger Bootle concluded.