The Bank of England kept interest rates on hold today despite mounting alarm at the stalling economy.
The Monetary Policy Committee maintained the base rate at 4.75 per cent in its latest decision.
The verdict came after figures showed inflation increased in November for the second month in a row, with wages also gathering pace again.
But at the same time there are fears that UK plc could slip into recession following Rachel Reeves‘ huge Budget tax raid.
The economy has contracted for two consecutive months, while closely-watched business surveys have shown activity flatlining. The costs of servicing government debt has also been creeping up.
Six members of the MPC preferred to keep the base rate steady, while three voted for a 0.25 percentage point reduction.
Worryingly, the Bank has downgraded growth forecasts for the last quarter of 2024 from 0.3 per cent to zero.
Governor Andrew Bailey said the central bank needs to make sure inflation returns to its 2 per cent target on a ‘sustained basis’.
‘We think a gradual approach to future interest rate cuts remains right, but with the heightened uncertainty in the economy we can’t commit to when or by how much we will cut rates in the coming year,’ he said.
Chancellor Rachel Reeves said: ‘I know families are still struggling with high costs. We want to put more money in the pockets of working people, but that is only possible if inflation is stable and I fully back the Bank of England to achieve that.’
Interest rates, which influence how much banks charge for loans and mortgages, are used as a tool by the central bank to keep inflation at its 2 per cent target level.
However, after drifting downwards from historic peaks the headline CPI hit to 2.3 per cent in October and 2.6 per cent in November.
Most economists had thought the latest data, and the prospect of price pressures increasing in the coming months, would persuade the Bank’s policymakers to hold interest rates.
The rate was reduced in August and again in November, and until relatively recently there were hopes of another drop before Christmas.
Shadow Chief Secretary to the Treasury Richard Fuller said: ‘The Bank of England has already warned Labour’s Budget will increase inflation and could cause ‘uncertainty’ in the economy, making it more difficult for the Bank to cut rates.
‘The Conservatives worked tirelessly to get inflation down to target, paving the way for the first interest rate cut in four years.
‘On Labour’s watch inflation is ticking back up – meaning higher prices, higher mortgage rates and less money in people’s pockets’
Governor Andrew Bailey and the rest of the MPC are making the latest decision on interest rates today