The Bank of England has held interest rates at 4.5%, defying expectations of a cut. The decision, announced Thursday, was driven by renewed strength in the service sector. That sector accounts for four-fifths of the British economy.

The Monetary Policy Committee voted 7-2 to hold. The two dissenters wanted a quarter-point cut. Governor Andrew Bailey said the data did not support lower rates. "The service sector is showing surprising momentum," he told reporters.

Official figures released last week showed services output rose 0.4% in February. That followed a 0.1% rise in January. Hospitality, retail and professional services all performed better than forecast. The Bank’s own agents reported that consumer spending on services remained robust.

This resilience complicates the fight against inflation. Core inflation, which strips out energy and food, stood at 4.2% in February. That is well above the 2% target. The Bank fears that strong services demand will keep prices high.

Wage growth in the sector is also a concern. Average weekly earnings for services workers rose 6.1% year-on-year in the three months to January. That compares with 5.8% for the whole economy. Higher wages can feed into prices as firms pass on costs.

The decision is a blow to borrowers. Mortgage holders on variable rates will see no relief. Homeowners coming off fixed deals face continued high repayments. The average two-year fixed mortgage rate is now 5.6%, according to Moneyfacts.

Business groups expressed frustration. Rain Newton-Smith, chief economist at the CBI, said: "Firms are struggling with the cost of capital. Investment is being held back." The British Chambers of Commerce called for a cut to support growth.

But the Bank remains cautious. It noted that geopolitical risks could push up energy prices. The war in Ukraine and tensions in the Middle East are ongoing threats. A cut now might be premature if inflation rebounds.

The decision was not unanimous. The two MPC members who voted for a cut argued that the economy was weak. They pointed to flat GDP growth in the fourth quarter. But the majority sided with Bailey, stressing the need to see more progress on inflation.

The Bank’s latest forecasts show inflation falling to 2% by the end of the year. But services inflation remains stubborn. The MPC will watch data on wages and prices closely. The next decision is on May 8.

For now, the message is clear: the Bank will not ease policy until it is sure inflation is defeated. The service sector’s strength is a double-edged sword. It supports growth but keeps rates higher for longer.

Homeowners and businesses will have to wait. The cost of borrowing will remain elevated. The Bank’s priority is price stability, not stimulating the economy. Until services inflation cools, don’t expect a cut.