LONDON (AFP) -- The Bank of England held its key interest rate at 5.25 percent for the third month in a row on Thursday, ahead of a likely quarter-point increase in May, according to analysts.

Sterling fell against rival currencies after the decision, which economists expect to have been a close call by the nine-member Monetary Policy Committee (MPC) following recent strong economic data in Britain.

British borrowing costs remain at the same level as U.S. interest rates, while in the eurozone they stand at 3.75 percent. Japan's key rate is 0.50 percent.

The MPC gave no reasoning behind Thursday's decision, as is customary when no change is made to the "repo" rate -- at which the BoE lends to commercial banks.

For further insight into the MPC's meeting, economists must wait for the minutes, which are due to be published on April 18.

"The decision for unchanged interest rates today may well have followed a very tight vote and we strongly suspect that this will mark only a temporary reprieve," Global Insight economist Howard Archer said.

The BoE has hiked rates three times since last August, most recently with a surprise hike in January, as it fights above-target annual inflation which surged to a decade-high of 3.0 percent last December. Archer added: "We believe that it is pretty short odds that the Bank of England will lift interest rates to 5.50 percent in May as a precautionary measure aimed at containing medium-term inflation risks."

The BoE had also opted for no change in March after inflation fell heavily in January. However, it bounced back in February to 2.8 percent, in part owing to higher air fares.

In its latest quarterly inflation report, the BoE said it expected British annual inflation to drop below its 2.0 percent target over the next 12 months -- assuming that interest rates rose to 5.50 percent.

"The bottom line is that by assuming inflation (is) on target with rates 25 basis points higher than their current level ... the MPC has basically made a 25 basis point rate rise inevitable," said Audrey Childe-Freeman, economist at the Canadian Imperial Bank of Commerce in London. "A policy action seems most likely in May."

The BoE is tasked by Prime Minister Tony Blair's Labor government with keeping 12-month inflation close to 2.0 percent.

According to Calyon analyst Daragh Maher, recent data could have resulted in a hike this week.

"We believed that the renewed upward traction in retail sales, the pick-up in inflation expectations, excessive money supply growth, accelerating house price inflation ... and the stabilization in financial markets might have proven enough," he said.

"These factors are likely to be still in play in May when the Bank of England will also have the additional attraction of a quarterly inflation report to justify any hike in greater detail."

British retail sales surged by 1.4 percent in February from the previous month, the biggest monthly gain since January 2005.

In addition, the country's economy expanded faster than previously thought last year, growing by 2.8 percent in 2006, compared with 1.9 percent 2005 and faster than the previous estimate of 2.7 percent.