A rate rise looked certain this month. Now it's been delayed indefinitely

Consumer spending is buoyant, but manufacturing and the stock market are depressed

So how long will interest rates stay on hold? Yesterday's decision by the Bank of England to keep base rates unchanged came as no surprise.

Instead the debate has now moved to the timing of that first hike. While August is still a strong bet, for the first time experts are wondering if there will be no hike this year.

Rates have been held at a 38-year low of 4.0 per cent for eight months, allowing business and consumers to borrow at rates not seen since Harold Macmillan presided over the post-war boom. But while we may not have had it so good for four decades most economists believe the cheap money party must come to an end soon.

The Governor of the Bank, Sir Edward George, implied as much when he told the audience at his Mansion House speech that rates would have to rise unless consumer spending slowed. He said the Bank was happy to wait but added that "one can legitimately debate just how much risk we can afford to take by waiting".

But he was speaking last week before the latest fall in equities that knocked £70bn off share prices in London alone and sent panic across dealing rooms on both sides of the Atlantic and the Channel.

Economists agree this probably had a strong impact on yesterday's decision but some agree it could have longer-term implications. Simon Rubinsohn, chief economist at Gerrard, the stockbrokers, said the consumer is finding it increasingly hard to keep the UK running single-handedly.

"I believe that a good case can be made for leaving things on hold for the balance of the year," he said.

His calculations show that households' net financial wealth fell 12 per cent over the three months to June as share prices fell. Even when the surge in house prices was included, net wealth has declined by a little more than 3 per cent. "A decline of this magnitude may only have a limited impact on consumer behaviour in the near term, particularly as the wealth effects related to housing are considerably larger than those of financial assets," he said. "If sustained, however, it does suggest that the pace of high street spending will continue to moderate."

This is the key issue that has dominated the rate debate since the start of the year.

On the one hand, the consumer is powering away, led by house prices. This week's figures showed house prices rising at about 3 or 4 per cent a month with annual inflation at a 13-year high of around 19 or 20 per cent.

New mortgage borrowing hit its third record in four months in May, with strong evidence that some of this is taking the form of households borrowing against their home to fund extra spending.

In any other environment, this would be a prima facie case for a rate hike.

On the other hand, the manufacturing sector is in recession, with the latest survey from business managers indicating that a nascent recovery had virtually ground to a halt. Inflation is at a historic low of 1.8 per cent, well below target while the overall economy has grown at a rate of 0.1 per cent a quarter for the last six months.

Therefore, the state of the economy holds the balance of power. Falling equities, the latest CBI survey of retail sales and yesterday's figures showing the first fall in car sales for almost two years could point to a turn. This carries little weight with Michael Saunders, UK economist at Schroder Salomon Smith Barney, who still expects that the Bank will hike next month. "To paint a scenario for rates to be kept on hold beyond August, I think would need monthly falls like the last one," he said.

Mr Saunders said there will be little sign of the slowdown in house prices that the governor would need to see, based on the latest mortgage lending and house prices rises. He added that while recent survey evidence had indicated a slowdown across all parts of the economy in June this was probably due in part to the double Jubilee bank holiday and the World Cup. "If you look at the second quarter, the surveys have been pretty good and GDP for that period could be between 0.7 and 1.0 per cent, which would be above trend."

He said that, assuming the quarterly surveys from the CBI and British Chambers of Commerce were strong, the Bank would hike in August.

Geoffrey Dicks, chief economist at Royal Bank of Scotland, said the UK had embarked on economic recovery at a time of full employment.

"Wage pressure, already evident in parts of the economy, is likely to spread," he said. "Higher interest rates will be needed to contain the threat."

Certainly recent reports from Incomes Data Services and the Industrial Relations Services, two acknowledged pay analysts, have reported a rise to 3 per cent from 2.5 per cent in average wage deals over the past few months.

Unemployment is close to record lows and more people are in work than ever before. Average earnings levels – a key marker for inflation-watching – is subdued but that is mainly driven by the one-off collapse in bonuses.

Meanwhile, the Government is embarked on a major spending programme that will undoubtedly boost public sector employment and wages further. Philip Shaw, chief UK economist at the finance house Investec, said that Bank's new forecasts, which are prepared ahead of next month's meeting would uncertainly point towards the risk of higher inflation. Recent comments from Mervyn King, the hawkish deputy governor who was alone in voting for a hike last month, imply that it could show inflation as high as 3 per cent.

"Under this scenario the committee would feel obliged to raise rates at its August meeting, to push the forecasts back on track. Indeed this is just about still our central case," he said. "But this is contingent on equity turmoil dying down which looks far from a sure fire bet at present. Concerns over a runaway boom in the housing market might be shelved until another day, or in extreme circumstances, perhaps even another year."

Mr Rubinsohn said concerns over the housing market were overdone. "People talk about the need to prick the bubble but if you did succeed in doing that I am not sure there's an awful lot left to keep the economy growing." He said there was a deeper issue about the balance between the worries over growth and concerns over inflation. "If in 12 months we look back and have to say we misread the signals then we could say 'OK it was a mistake [not to hike rates] and we have ended up with slightly higher inflation," he said. "But the great worry is ... repeating the Japanese deflation. We thought that had gone away but now we see even the Fed is worried about that."

In turn, Mr Saunders questioned whether the focus on falling share prices had been overdone, especially as the latest figures showed a marked increase in business profitability.

He said while 60 per cent of the earnings per share of the FTSE-Allshare companies were derived from overseas, that figure was half that for overall business profit.

At the end of the day, the near-term path for interest rates will be determined by whether the Bank chooses to take a risk over growth or inflation. While Mr Rubinsohn sees a possible threat of deflation others, such as John Butler at HSBC, fear the Bank is taking a risk by not responding to clear hints that inflation is rising above target. "A rate rise is always unpopular, probably more so now than ever," he said. "But if the Bank delays the hike in rates, it increases the risk of future price instability."

It is this balance of risks that will determine whether households can celebrate New Year's Eve with the same borrowing costs as they did a year earlier.