Bank of England to keep interest rates at 15-year high despite economic concerns

The Bank of England is set to join its counterparts in the US Europe keeping lending rates unchanged at its policy meeting on Thursday, despite​​​​increasing concerns over the British economy

The central bank is expected to keep its key interest rate at a 15-year high of 5.25%, where it has been since August. Holding that high followed two years of increases aimed at a spike in inflation, first caused by supply chain problems during the coronavirus pandemic and then by Russia's invasion of Ukraine, which pushed up the cost of food and energy.

The decision comes amid intense pre-Christmas central bank activity with the US Federal Reserve and European Central Bank also intend to keep prime lending rates at multi-year highs.

The Bank of England is believed to be further away from cutting rates than the Fed or the ECB, with UK inflation higher than in the US or the 20 European Union countries that use the euro.

The Bank of England has managed to reduce inflation from a four-decade high of more than 11%, but still has some way to go to get back to its 2% target. Inflation, as measured by the consumer price index, was 4.6% in the year to October, still too high for comfort.

While higher interest rates have helped in the fight against inflation, the reduction in consumer spending, primarily through higher mortgage rates, has weighed on UK economic growth.

Figures released on Wednesday showing the British economy shrank by 0.3% in October from a month earlier added to concerns about the near-term outlook for growth, especially as many households have yet to feel the impact of rising mortgage rates.

“The poor performance of the UK economy in October is bound to reignite speculation about whether the country has slipped back into recession,” said James Smith, director of research at the Resolution Foundation. Growth of 0.5% over the past 18 months is the weakest non-recession growth on record.'

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