BoE set to hold rate as inflation pressures keep cuts at bay

The Bank of England is poised to hold the Bank Rate at 4% when the latest policy decision is announced at noon, dashing hopes of an imminent cut as inflation pressures remain stubborn. August consumer price inflation printed at 3.8%, the highest level since the start of 2024, with food and drink prices rising more quickly than other components and contributing to price pressures across the economy.

Official figures released yesterday showed CPI at 3.8% in August, the highest since the start of 2024, and the annual rate for food and drink prices rising 5.1% from 4.9% in July. Analysts said the data argue against a near-term rate cut even as the economy remains sluggish. Monica George Michail, associate economist for the National Institute of Economic and Social Research, said the MPC is likely to stay cautious about further rate cuts given higher labour costs, elevated inflation expectations, and upside risks from food prices. She noted that while faster cuts would support growth and lower the government’s borrowing costs, the Bank will likely hold steady in the coming months to focus on keeping inflation under control. Sandra Horsfield, economist at Investec, added that August’s inflation data showed price rises remaining at uncomfortably high levels, with CPI well above the Bank’s target. She said the likelihood of a rate cut this week seemed remote and that the MPC may sit out the November and December meetings, resuming cuts only early next year. Bank of England Governor Andrew Bailey said last month that the path for rates remains downward but acknowledged genuine uncertainty about the trajectory.

The Bank is also guided by its own forecast, which sees CPI inflation peak around 4% in September before gradually easing toward the 2% target. Economists note that the August cut to 4% in the previous month helped borrowers and mortgage holders, but any further reductions will likely depend on clearer evidence that inflation is fading. The decision today is expected to hinge on whether incoming data signals a sustained improvement in price pressures, or whether shocks such as food costs keep the inflation path higher than policymakers had hoped.

Beyond the domestic data, policy commentary has anchored expectations around how quickly the MPC might reduce rates. Some analysts argue that the Bank will need to see a clearer downturn in inflation before delivering further cuts, potentially deferring pressure on borrowers until early next year. In the background, policy makers must weigh the wider fiscal backdrop; firms have blamed the Chancellor for adding upside momentum to inflation with measures in the Budget, including a tax raid and a higher minimum wage, which complicate the inflation battle even as the government argues the changes support workers and growth.

Images related to the scene at the Bank of England and market reactions accompany this report to illustrate the ongoing policy response.