THE Bank of England is set to keep interest rates on hold on Thursday amid further signs that the UK's economic recovery is faltering.

When the Bank’s Monetary Policy Committee (MPC) last met, a month ago, it left interest rates at their record low of 0.5% because they were worried about the fragile nature of the economy.

Since then, there have been further signs of a slowdown in growth, after surveys revealed that activity in the manufacturing sector in June slumped to a 21-month low and consumer confidence showed its biggest fall since January.

Many economists now do not expect a rise in rates until 2012. This is despite inflation having remained at 4.5% in May – more than double the Bank’s 2% target – after increases in the cost of food and alcohol.

One of the main worries for the MPC is the decline in consumer spending, as nervous households delay all but essential purchases because they fear for their jobs, while their wages are failing to keep pace with rising prices.

There has been increasing evidence of this over the past month, following the recent collapse into administration of retailers Jane Norman and Habitat, while other store chains such as Carpetright and Thorntons have announced store closures.

At the last meeting of the nine-strong committee, the number of members voting for a hike in interest rates dropped to two from three after Andrew Sentance, who had consistently voted for a rise, was replaced by Ben Broadbent, who sided with the no-change camp.

But even the members who voted for a hike admitted that recent economic data had been weak and there was renewed talk about the economy needing to be boosted by a second round of quantitative easing.

Howard Archer, chief economist at IHS Global Insight, said: “We now expect the Bank to hold off from raising interest rates until the second quarter of 2012.

“We suspect that most MPC members will maintain the view for many more months to come that higher rates are an extra handicap that the fragile economy could well do without.”