Members of the Monetary Policy Committee (MPC) voted by a majority of 6–3 to maintain the bank rate at 5.25%. Three members argued for an increase to 5.5% but were voted down, unsurprising in light of negative growth figures announced this week.

In terms of longer term projections on base rates, the December report hinted that there would be no change until the second half of 2024, indicating only that ‘monetary policy would need to be sufficiently restrictive for sufficiently long to return inflation to the 2% target sustainably in the medium term’. On inflation it was equally negative, saying that it would only achieve 2% target by the end of 2025.

The Bank said the decision was ‘finely balanced between the risks of not tightening policy enough when underlying inflationary pressures could prove more persistent, and the risks of tightening policy too much given the impact of policy that was still to come through’.

Most members indicated that it was ‘too early to conclude that services price inflation and pay growth were on a firmly downward path’. They admitted that the latest inflation figures had also come in lower than expected, but the Bank warned that ‘second-round effects were likely to be slow to unwind and, with the labour market still tight, the extent to which wage and price-setting would take account of the downward path of CPI inflation was not clear’.

Sarwar Khawaja, chairman of Oxford Business College, said: ‘The Bank’s surprisingly tough line risks sounding more discordant than determined.

‘With the UK economy officially shrinking in October and both consumer spending and business investment falling, the painful side effects of the Bank’s bitter monetary medicine are spreading.

‘So while no-one expected the Bank to cut interest rates today, many businesses had at least hoped for some clues that rates would start to ease off next year.

‘But the minutes of the Bank’s rate-setting monetary policy committee offered not one crumb of comfort. Not only did three committee members vote for another rate rise this week, there wasn’t even a hint of the tone softening in 2024.’

Holding the highest interest rate for 15 months has raised borrowing rates for business and growth is flatlining.

Adam Zoucha, MD of FloQast, said: ‘The belts and braces approach of the Bank of England holding tight onto interest rates seems to be working, with inflation falling steeply. But as October GDP figures reveal, the economy is contracting. Businesses are feeling significant strain and borrowing costs remain high.

‘While it’s likely 2024 will see interest rates fall; growth and innovation - which have been supressed by months of fiscal policy rigour - could take longer to return. Companies will need to prepare for a lengthy road to recovery.’

There was some support for the hardline approach. Nicholas Hyett, investment manager at Wealth Club, said: ‘A minority of MPC members voted to raise rates again, despite a slowdown in economic growth and weakening labour markets, with the minutes flagging geopolitical risks and potential for further wage growth. Government bond yields have ticked up and the UK stock market has slipped as a result.

‘There’s logic to holding rates steady at the moment – central banks have a history of folding under the economic pressure and declaring victory on inflation too early. But, as we have said before, leave rate cuts too long and there’s a risk the interest rate cure becomes worse than the inflationary disease.’