The Bank of England is today widely expected to keep interest rates on hold at 5 per cent, despite rising inflation as evidence of an economic slowdown gains momentum.

Following a two-day meeting, the Bank's nine-member Monetary Policy Committee (MPC) will announce its decision at midday today.

Although there is general consensus for a rate hold, it is unlikely to deliver much cheer for households and business following a swathe of poor economic data in recent weeks and will add to fears that the country may fall into a recession.

Earlier this week, a survey by the British Chambers of Commerce revealed that sales, orders, and confidence levels across the services sector, which covers three quarters of the economy, are at their worst since the last recession in the early 1990s. At the same time, it emerged that conditions in manufacturing are at their worst since 2001, in the aftermath of the September 11 attacks on the US.

Polls also show that consumers’ fears over the fate of the economy have now sunk to levels even worse than those reached during the last recession, as families face an increasingly painful squeeze on their finances alongside the deepening slump in the housing market and the tumbling stock market.

House prices fell by a further 0.9 per cent in June, falling for an eighth month in a row to stand 6.3 per cent down on a year earlier — their steepest annual decline since December 1992.

However, the MPC is expected to resist pressure to ease the cost of borrowing as its concentrates its attention on its official mission to keep inflation, currently at 3.3 per cent, under control, and in line with the 2 per cent target set by the Chancellor.

The Bank’s inflationary target is being made more difficult as oil prices continues to set new record highs, recently spiking at more than $146 a barrel.

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