LABOUR’S economic recovery plans have been dealt a blow by the Bank of England holding rates at 4.75 per cent, experts said today.

The TUC and Institute for Public Policy Research (IPPR) had called for a third cut to rates this year arguing Britain’s low growth showed the need for greater investment into the economy.

The Bank however kept the base rate on hold a day after data showed inflation had crept up for the second consecutive month to 2.6 per cent in November.

IPPR’s principal research fellow and head of macroeconomics Carsten Jung said: “With growth stalling and the labour market slowing down, the Bank of England should have cut interest rates today.

“The economy needs a gentle boost.

“But its decision to keep interest rates at their high current levels will mean it remains expensive for businesses to invest. That means firms will be less likely to invest in their own future growth.

“This will remain a drag on the government’s mission to grow the economy as a whole faster.

“Given the Bank now expects zero growth in last quarter of this year, the Bank’s policy stance is simply too tight.  

“Inflation is broadly on track with expectations. It was always expected to go up slightly toward the end of this year.

“But price pressures should now ease more quickly given weaker than expected growth.

“The committee should have put more emphasis on this.” 

Reacting to the Office for National Statistics data showing CPI inflation had reached 2.6 per cent, TUC general secretary Paul Nowak said the Bank must cut interest rates to protect families and businesses.

He said: “The latest GDP and employment figures show the economy is still fragile and the priority must be turning this around.”

Mr Nowak said it was “vital” the Bank makes an interest rate cut, warning: “The government’s plan to invest in our broken economy is important — but they can’t do it on their own.”