Bank of England holds interest rates at 5.25% for third time in a row amid recession fears

The Bank's governor admits there is 'still some way to go' to get inflation down, and indicated cuts are unlikely any time soon - as ITV News' Economics Editor Joel Hills reports

The Bank of England has left interest rates unchanged at 5.25%, where it has stood since August.

It joins its peers in the US and Europe in keeping borrowing rates unchanged, despite mounting worries over the state of the British economy.

Governor Andrew Bailey stressed there is “still some way to go” in policymakers’ efforts to get inflation down.

On Thursday, the Bank’s Monetary Policy Committee (MPC) voted in favour of keeping the rate steady at its current level, which is a 15-year-high.Six members of the nine-strong committee were in favour of maintaining the rate at 5.25%, while three called for an increase to 5.5%.

Governor of the Bank of England Andrew Bailey Credit: AP

The decision follows two years of hikes that targeted a surge in inflation, first stoked by supply chain issues during the Covid-19 pandemic and then Russia’s invasion of Ukraine, which pushed up food and energy costs.

The US Federal Reserve and the European Central Bank are also set to keep their main borrowing rates on hold at multi-year highs.

“While the full effect of higher interest rates have yet to come through, borrowers on the whole have been resilient to these changes,” Bank of England governor Andrew Bailey said on Thursday.

“We recognise that there are those that are more adversely affected," he added.

Mr Bailey said borrowers falling into arrears was rising for residential and buy-to-let borrowers, but stressed these were still “well below” peak levels in 2008.

The Bank is not forecasting a recession, he said, but expects the economy to flatline between now and the end of 2025.

However, City investors appear to think otherwise, warning that the Bank’s strategy was increasingly at risk of being abandoned next year amid a rapidly worsening outlook for the economy.

The Office for National Statistics (ONS) said on Wednesday the size of the UK economy shrank more than expected in October, with gross domestic product (GDP) falling around 0.3% during the month.

James Smith, research director at the Resolution Foundation said: “The poor performance on the U.K. economy in October will inevitably reignite speculation about whether the country is back in recession.

“But what’s not beyond doubt is that Britain is a stagnation nation — the 0.5% growth over the past 18 months is the weakest outside of a recession on record.”

High interest rates and low economic growth are hardly the ideal backdrop for the governing Conservative Party in next year’s general election, which opinion polls suggest it will lose to the main opposition Labour Party.

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