Interest rates held at 4% by Bank of England

Interest rates were held at 4% in a tight vote as the Bank of England said it judged inflation in the UK to have peaked.

Policymakers voted 5-4 in favour of leaving rates unchanged on Thursday but said borrowing costs were “likely to continue on a gradual downward path”.

Bank governor Andrew Bailey said rather than cutting interest rates now, he would “prefer to wait and see” if price rises continued to ease this year.

The Bank’s decision comes ahead of the government’s Budget on 26 November, where speculation has grown that Chancellor Rachel Reeves will raise taxes.

Reeves has said measures in her Budget will be “focused on getting inflation falling and creating the conditions for interest rate cuts”.

Inflation currently stands at 3.8%, nearly double the bank’s target of 2%.

But the chancellor has not ruled out raising income tax, National Insurance or VAT – a move which would breach Labour’s main manifesto pledge.

Despite judging inflation to have peaked, the Bank said evidence suggested in its quarterly update on the UK economy that there was “no sign of increasing consumer confidence”.

“Consumers remain cautious, focused on value, and prefer saving to overspending,” it said.

It said while supermarkets had reported strong food sales growth, it was driven by price rises, with volumes staying flat.

The Bank said it expected food price inflation to remain higher this year before slowing in 2026, citing higher global agricultural prices.

“Households continue to change their shopping habits to reduce spending, such as buying more vegetables and reducing meat consumption,” it reported.

Aside from food bills, childcare costs and caring obligations were leading some people to reduce their working hours or “even stop working”, the Bank said.

“Fashion retailers report falling sales due to competition from the second-hand market,” it said, adding that accommodation providers were seeing shorter stays and restaurants faced “weak demand” with lower spending per visit.