The Bank of England opted to keep rates on hold at 5 per cent despite fears that the UK is falling into its first recession in 20 years.

The Bank’s Monetary Policy Committee (MPC) has been wrestling with soaring inflation and slumping economic growth throughout 2008 and, for the fourth month running, has held the base rate at 5 per cent.

While many believe the UK is headed for recession, lowering the base rate in order to spur growth could push up the level of inflation, which is already almost double the government's target of two per cent.

Richard Lambert, CBI director general, says, ‘The latest data show the slowdown in UK economic activity gathering pace, and business and consumer confidence falling further. However, with inflation heading higher in the next couple of months, the Bank is right to leave rates on hold for the time being.’

To make matters worse, analysts are predicting that inflation figures will reach, if not exceed, five per cent before the end of the year as a result of rising energy costs.

Darren Stevens, director of customer services at Chelsea Building Society, says, ‘Unfortunately, “inflationary pressure” is no longer an abstract economic term. Normal people, up and down the UK, are struggling daily and the last thing their finances needed was another base rate rise.

‘Already, millions of Britons are using their savings to pay for daily essentials such as food, rent and mortgages and 15 per cent have used their savings to pay for bills such as council tax. With 13 per cent of Britons however starting to save less, this is a strategy that is not sustainable long term and will lead to debt problems.’