The Bank of England has held interest rates for the third time in a row as data showed the UK economy might be tipping into a protracted slump.
The decision by the Bank of England’s Monetary Policy Committee (MPC) on Thursday means that rates will remain at 15-year high of 5.25 per cent.
Six members of the nine-strong committee were in favour of maintaining the rate at 5.25 per cent, while three called for an increase to 5.5 per cent.
In his latest remarks, Bank Governor Andrew Bailey stressed there is “still some way to go” in policymakers’ efforts to drag inflation down to its 2 per cent target, and indicated that rates could stay higher for longer.
The BoE had hiked interest rates in 14 consecutive meetings to deal with surging inflation, leading to painfully high borrowing costs for businesses and mortgage holders.
However, central bankers held rates in the September and November meetings after witnessing a notable cooling in the rate of inflation.
Mr Bailey said: “We’ve come a long way this year, and successive rate increases have helped bring inflation down from over 10 per cent in January to 4.6 per cent in October, but there is still some way to go.
“We’ll continue to watch the data closely, and take the decisions necessary to get inflation all the way back to 2 per cent.”
The latest meeting comes after key economic data from the Office for National Statistics (ONS) this week also showed signs of cooling in the economy.
On Wednesday, the ONS said UK gross domestic product (GDP) fell 0.3 per cent in October, as the manufacturing and construction sectors were impacted by poor weather.
It came a day after the statistics body revealed that wage growth slowed at the fastest pace for two years.
The ONS said private-sector regular earnings, excluding bonuses, rose by 7.3 per cent in the three months to October, down from 7.8 per cent in the previous three months, pointing towards weakening in the labour market.
Economists have increased their expectations for interest rate cuts next year as a result.
Previously, the financial markets had priced in 0.75 percentage points of interest rate cuts in 2024, but on Wednesday they were expecting a 1 percentage point drop, which would take interest rates to 4.25 per cent by the end of 2024.
The Bank of England has remained cautious about rate cuts despite signs of cooling inflation and subdued economic activity in recent data.
Mr Bailey, and other members of the MPC, have indicated rates will remain where they are for some time.
Three of the nine BoE policymakers voted to raise interest rates to 5.5 per cent because they said household incomes had risen and inflationary pressures remained elevated.
The three said an interest rate rise was necessary “to address the risks of more deeply embedded inflation persistence and to return inflation to target sustainably in the medium-term”.
However, the majority of the MPC felt keeping rates at 5.25 per cent was necessary because UK economic activity remains subdued.
A spokesman for the Treasury said: “We have turned a corner in our fight against inflation, and real wages are rising but we must keep driving inflation out of the economy to reach our 2 per cent target.
“By cutting taxes for hard-working people and businesses, and helping people into work, we are forecast to deliver the largest boost to potential gross domestic product on record.”
Elsewhere, the European Central Bank left interest rates unchanged as expected and signalled an early end to its last remaining bond purchase scheme.
After Thursday's decision, the ECB's deposit rate stays at a record-high 4 per cent. It was at a negative 0.5 per cent only in July 2022.
