BoE to hold rates at 4% as UK inflation persists amid rising food prices
Markets expect no rate cut today as CPI stays elevated and food costs remain a pressure point; economists warn policy may stay restrictive into next year.
The Bank of England is poised to keep the base rate at 4% when the Monetary Policy Committee announces its decision at noon, potentially dashing Britons’ hopes for an immediate cut as inflation pressures persist.
Official data released on Thursday showed headline CPI at 3.8% in August, the highest level seen since early 2024. Analysts highlighted a jump in food and drink costs, with the annual rate rising to 5.1% in August from 4.9% in July. Inflation has now advanced for a fifth consecutive month, even as transport costs eased.
Economists said the MPC is likely to hold given price pressures from higher labour costs, elevated inflation expectations, and upside risks from food prices. Monica George-Michail, associate economist at the National Institute of Economic and Social Research (NIESR), said the MPC will probably keep rates on hold this Thursday, noting that while a faster pace of cuts would support growth and Government borrowing costs, the Bank will remain cautious in the near term to keep inflation under control.
Investec economist Sandra Horsfield said August’s inflation data show price rises stuck at uncomfortably high levels, with the overall CPI rate considerably above the Bank’s target. “The likelihood of a rate cut this week seemed remote; but beyond that too, we judge that it will take evidence of falling inflation to persuade a majority on the MPC that further rate cuts are appropriate,” she said, adding that the MPC may sit out the November and December meetings as well and only resume cuts early next year.
The Bank of England has signaled CPI inflation is expected to peak at around 4% in September before gradually easing. Governor Andrew Bailey said last month that the path downward remains, but there is genuine uncertainty about the pace and the timing of any further reductions.
The decision comes as political and financial markets weigh the impact of policy on households and government borrowing. A hold at 4% would limit relief for mortgage holders and could complicate the Chancellor’s efforts to support growth amid a tight fiscal climate, even as inflation remains the dominant constraint on policy. Analysts will be watching gilt yields and mortgage rates for clues about market expectations for the policy path.