Interest rates held at 4% as inflation stays above target

The Bank of England has left interest rates on hold at 4% and will slow the pace of its “quantitative tightening” programme in the year ahead to avoid distorting jittery government bond markets.

- Heather Stewart Economics editor

The central bank’s nine-member monetary policy committee voted 7-2 to leave borrowing costs unchanged, after five cuts since summer 2024, including a reduction last month.

The MPC had been expected to pause rate cuts this month as annual inflation remained at 3.8% in August, nearly double the target level. The Bank’s governor, Andrew Bailey, said: “Although we expect inflation to return to our 2% target, we’re not out of the woods yet so any future cuts will need to be made gradually and carefully.”

Bank policymakers have been balancing the risks of rising inflation, caused in part by a jump in food prices, against a continuing slowdown in the jobs market, with unemployment at a four-year high.

In the minutes of yesterday’s meeting, the MPC said its own estimates showed employment growth at zero, which it said was “partly attributable to the impact of increases in employers’ national insurance contributions”. The £25bn NICs increase at last year’s budget prompted a furious response from business groups.