UK interest rates have been left unchanged after the Bank of England said price rises were slowing faster than expected.
Interest rates were held at 5.25%, already their highest for 15 years.
It comes after figures on Wednesday revealed an unexpected slowdown in inflation in August.
‘Inflation has fallen a lot in recent months, and we think it will continue to do so,’ said Bank governor Andrew Bailey.
The Bank has raised rates for the past 14 times in a row and has now admitted that it has failed to control inflation.
The 14 rate increases have led to higher mortgage payments for many home owners and those with loans, but also higher savings rates.
Governor Bailey warned there was ‘no room for complacency’, indicating rates could stay at current levels for longer than expected.
Bailey said ‘We need to be sure inflation returns to normal and we continue to take the decisions necessary to do just that,’ he added.
However it was a split knife edge decision with four of the nine-strong rate-setting Monetary Policy Committee (MPC) voting for a rise, and five opting for a pause.
Bailey used his casting vote to pause the relentless series of rate rises, while the Bank caught its breath.
Chancellor Hunt commented hopefully: ‘We are starting to see the tide turn against high inflation, but we will continue to do what we can to help households struggling with mortgage payments.
‘Now is the time to see the job through. We are on track to halve inflation this year and sticking to our plan is the only way to bring interest and mortgage rates down.’
Both the Bank, and the Treasury, however, will be wary of the warnings of ‘premature celebration’ from the International Monetary Fund, which has flagged how the jump in energy prices in the 1970s triggered the inflation that proved tough to defeat.
There are already warnings that this latest decision could lead to more of a plateau than any significant drops in mortgage rates.
In minutes from its latest meeting, the MPC said that since June, inflation had fallen much faster than expected, dropping to 6.7% in August.
But it also said that unemployment was inching up and overall economic growth was ‘weaker than expected’.
For these reasons the MPC said it had kept rates on hold.
But it added that rates would need to remain ‘sufficiently restrictive for sufficiently long’ to get inflation back down to the Bank’s 2% target. It is not expected reach this rate until 2025.
Further rate increases will be needed if price rises start accelerating again.
Unite general secretary, Sharon Graham commented: ‘I’m glad that the Bank of England has finally listened to the voices of Unite and others, who have been telling them to stop hammering workers for decisions driven by price gouging.
‘The only winners from these rate increases have been the big banks, who made almost £30 billion of profit in just the first half of this year.
‘Now it’s time for the Bank of England to heed its own research and tackle the profiteers driving inflation.’
Bank of England Governor Andrew Bailey warned: ‘But there is no room for complacency. We need to be sure inflation returns to normal and we continue to take the decisions necessary to do just that.’
Its Monetary Policy Committee voted by a narrow margin of 5-4 to keep its ‘base rate’ at 5.25%.
Four members – Jon Cunliffe, Megan Greene, Jonathan Haskel and Catherine Mann – voted to raise rates to 5.5%.
The Bank had previously raised rates 14 times in a row to tame inflation, leading to the increase in mortgage payments.
Goldman Sachs said it now expected interest rates to remain unchanged after inflation was shown to have fallen.
However other economists say because inflation is still 6.7% – much higher than the 2% the Bank of England aims for – another rate rise could be on the cards.