Interest rates held at 4% as UK ‘not out of woods’ on inflation

The Bank of England has held interest rates at 4% as it said the UK was “not out of the woods” on inflation, with taxes contributing to rising food costs.

The Bank’s Monetary Policy Committee (MPC) voted to keep rates unchanged, following a 0.25 percentage point cut in August.

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.”

The MPC said it was being cautious about cutting borrowing costs until it had more evidence that pressures on UK inflation were easing.

Consumer Prices Index (CPI) inflation stayed at 3.8% in August, official data showed on Wednesday, remaining at the highest level since the beginning of 2024 and above the Bank’s 2% target rate.

Food and drink inflation rose to 5.1%, the fifth month in a row that price rises had accelerated.

The MPC said evidence from its network of agents across the UK pointed to higher commodity prices, globally and in the UK, as accounting for much of the increase over the past year – particularly for beef, cocoa beans and coffee.

“Labour costs and costs associated with new packaging regulation had also accounted for some of the increase in food prices,” it wrote in the summary of its decision.

Published: 18/09/2025 by Radio NewsHub