CITY bosses kept the squeeze on the British economy by voting to keep interest rates at 5 per cent today.

The Bank of England’s key monetary policy committee (MPC) decided by eight votes to one against a rate cut, keeping the cost of borrowing high.

This was in spite of an earlier announcement that inflation remains stable at just 2.2 per cent, only slightly above the Bank’s mandated target of 2 per cent.

The announcement sent the pound soaring to its highest level for two-and-a-half years, immediately rising almost a cent against the dollar.

Bank governor Andrew Bailey said: “It’s vital that inflation stays low, so we need to be careful not to cut too fast or by too much.”

In a statement accompanying the rate announcement, the Bank warned of “some greater uncertainty around the near-term global outlook” even as it acknowledged that “UK activity growth had been broadly in line with expectations.”

The TUC had called for a rate cut following the inflation announcement, but the MPC believed that “inflationary pressures could prove more entrenched, possibly as a result of more structural factors or greater momentum in demand” and committed to a “gradual approach” on rates going forward.

The interest rate squeeze will make borrowing more expensive and curb consumer spending, reducing the demand for goods and services in turn.

It therefore fits in to the “misery” narrative being championed by Prime Minister Keir Starmer and Chancellor Rachel Reeves as they try to soften the country up for a return of austerity and a tough budget next month.

The hospitality industry was disappointed by the rate freeze, with Kate Nicholls, chief executive of UK Hospitality, commenting that stabilised inflation should have cleared the way for a rate reduction.

“This positive sign should have emboldened the Bank to take decisive action that would inject some confidence into businesses and, crucially for hospitality, begin to relieve the pressure of Covid loan repayments,” she said.

“These repayments remain a significant burden for businesses, particularly with interest rates remaining high.”

And CBI economist Alpesh Pajera said that industry expected a rate cut in November, with more to come next year.