The Bank of England held its benchmark interest rate steady at 5.75 percent on Thursday. The decision was anticipated after weeks of turmoil in global markets.Fears over banks' exposure to the rising defaults on U.S. subprime mortgage loans have led to tighter credit conditions, raising the cost of borrowing. The Bank of England on Wednesday made its first intervention by offering to pump billions of extra pounds into the banking system to ease high short-term borrowing costs.

In its first public statement since fears of shrinking credit took hold on global markets, the central bank said it had raised its aggregate reserves target for the next month by 6 percent to relieve pressure on overnight rates and was ready to add 25 percent more if overnight rates remain high.



However, it added that it should not be expected to take additional action to reduce three-month borrowing costs among banks, which have jumped to their highest rate in almost nine years as they become increasingly reluctant to lend to rivals until the extent of the credit crisis is known.

A drop in inflation below the government's 2 percent target also eased pressure on the bank to lift rates Thursday after five increases in the past year. Inflation eased to 1.9 percent in July, the first time it has been below the 2 percent target in more than a year, on sharp declines in food prices and furniture costs.

There are also tentative signs that the recent rate rises are beginning to dampen the housing market. Halifax, Britain's biggest mortgage lender, said that house prices had increased by just 1.6 percent during the three months to the end of August, compared with a gain of 4.5 percent in the first quarter of the year.

Retail sales growth has also slowed, with same-store sales up 1.8 percent in August, compared to 2.5 percent the same month last year.