LONDON (Reuters) The Bank of England held interest rates at a record-low 0.5 percent yesterday, opting to wait for clearer signs of recovery before following the European Central Bank in tightening policy.Although inflation in Britain is almost twice as high as in the euro zone it hit 4.4 percent in February Britain’s recovery is more shaky than that of France or Germany and the economy unexpectedly lurched into reverse at the end of 2010.The on-hold verdict will come as relief to the government, which is hoping monetary policy will stay loose to cushion the blow of its fiscal tightening, but may fuel criticism that the BoE has gone soft on inflation.Chancellor of the Exchequer (finance minister) George Osborne said again yesterday that Britain risked a debt crisis like that of Greece, Ireland and Portugal if it failed to cut a record peacetime budget deficit.The BoE may not keep its powder dry for long, however. Markets are split roughly 50:50 on the chance of a rate hike in May and have fully discounted a quarter-point rise by August.Three of the BoE’s nine policymakers are already convinced of the need to raise rates and a robust first quarter GDP estimate, due on April 27, could bring the majority on board.“News since the March meeting has generally supported the view that the acute weakness in Q4 was a ‘one-off’ but has not been conclusive in this regard,” said Nomura economist Philip Rush.“Pivotal members of the Monetary Policy Committee have indicated they are awaiting confirmation of this before voting in favour of a rate hike.”Undeterred by the BoE’s reticence, the ECB raised interest rates by 25 basis points to 1.25 percent, its first increase since July 2008, signalling a growing worry that price pressures are becoming entrenched.Given the ECB is dealing with a smaller inflation problem, the move is bound to heighten accusations that Britain’s central bank is falling behind the curve. But the ECB’s move is unlikely to worry the BoE, which is keen to engineer an export-led recovery and may welcome the pound’s export competitiveness against the euro, the currency of Britain’s main European trading partners.Anticipation of the ECB’s rate rise this week has seen the euro gain five percent against the pound since mid February. At the same time, the pound has risen slightly against the dollar, helping buffer the pain of rising oil and commodity prices.“The negative impact of the ECB’s rate rise on demand in a key export market will be balanced for the BoE by the effect of a more competitive currency,” said George Buckley, chief UK economist at Deutsche Bank.Minutes of the BoE’s meeting this week will be published on April 20, giving the vote breakdown for yesterday’s decision and policymakers’ reasoning. At last month’s rate-setting meeting, BoE policymakers viewed the rise in oil prices as having increased the risks to growth as well as the risks to inflation. The BoE’s focus on downside risks to consumption contrasts with the ECB which is more worried that inflation will trigger ‘second round’ effects possibly because wages in some euro zone countries are directly indexed to prices, unlike in Britain.“Although high and rising inflation is clearly a problem for the Bank of England, there are plenty of reasons to err on the side of caution,” said Hetal Mehta, an economist at Daiwa.