Bank of England holds interest rates at 5.25% - keeping borrowing costs at highest level for 15 years

14 December 2023, 12:05 | Updated: 14 December 2023, 12:34

The Bank of England has held interest rates at 5.25% - the third time in a row.

It keeps the cost of borrowing at its highest level for 15 years.

The bank has held rates after successive hikes in a bid to tackle skyrocketing inflation.

It says inflation is at 4.6% - more than double its target of 2% but far lower than the 10.7% seen at the end of 2022.

The Bank of England's governor Andrew Bailey said the UK has "come a long way this year".

Rishi Sunak had made cutting inflation one of his priorities in government - though he is unable to change interest rates, one of the main methods of combatting surging prices, on a whim, having to leave it to the bank.

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% target."

Read more Pay rises at slowest rate for two years and job vacancies fall, in sign Bank of England will keep interest rates steady

The bank's Monetary Policy Committee said six of its members voted to keep rates at 5.25%, while three voted to hike them to 5.5%.

Rates were as low as 0.25% at the end of December 2021, before the full-scale Russian invasion of Ukraine and demand post-Covid led to inflated prices.

Read more: UK economy shrank 0.3% in October in surprise decline

And the bank's committee warned it expects higher interest rates are here to stay.

It said in a statement that the "committee continues to judge that monetary policy is likely to need to be restrictive for an extended period of time".

"Further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures," it added.

The trio who voted for a 0.25% rise said they were concerned about a rise in household incomes and elevated inflationary pressures.

Megan Greene, Jonathan Haskel and Catherine Mann also said a rise was needed "to address the risks of more deeply embedded inflation persistence and to return inflation to target sustainably in the medium-term".

But their six colleagues decided against a hike because of Britain's subdued economic activity.

This week, figures showed the UK economy unexpectedly contracted by 0.3% in October.

GDP shrank after growing 0.2% in September, according to an early official estimate by the Office for National Statistics (ONS). Economists had expected GDP to fall by just 0.1%.