Image source, EPA/Shutterstock

We've heard about the risk to the UK economy from the Middle East conflict.

But another factor mentioned in the Bank of England's report is the impact of extreme weather.

"The El Niño phenomenon is expected to be unusually strong in 2026–27," it says, citing the US National Oceanic and Atmospheric Administration (NOAA).

El Niño is a naturally occurring phenomenon that happens over the Pacific Ocean roughly every two to seven years and can push up global temperatures.

The report says that these hotter conditions "could reduce crop yields and put upward pressure on global food prices", while extreme weather has the potential to disrupt key shipping routes which could worsen supply chain disruption.

In the UK, this disruption from extreme weather "could lead to higher food price inflation", it says.

You can read the full report here., external

Dearbail Jordan
Senior business and economics reporter

Image source, EPA/Shutterstock

Bailey continues in the press conference and says he has already had conversations with the new chancellor John Healey.

He also notes that he’s had conversations with quite a few chancellors.

Since Bailey became governor in March 2020 - just in time for the Covid pandemic - there have been six people in charge of the Treasury.

Asked if he has any advice for 11 Downing Street’s latest resident, Bailey says he and the chancellor - whoever they are - talk regularly, though describing it as "giving advice" might be over-egging it a bit.

Kevin Peachey
Cost of living correspondent

In the reports and at the press conference, the Bank's policymakers keep on mentioning "second-round effects". Here's what they mean.

The first impact of something like the energy shock during the Iran war is higher prices.

The second-round effects refer to fallout of an initial shock and how the resulting higher inflation ripples out to other parts of the economy, such as wage demands.

The risk is that higher inflation is then embedded in the UK economy, so the Bank needs to decide whether to act earlier rather than later.

The BBC's economics editor Faisal Islam then asks Bailey whether the interest rate now seems dependent on what happens geopolitically - particularly with the war in the Middle East.

Bailey says the outlook of the war can change within a week and adds it is "hazardous" to comment about the "current level" of the conflict.

He reiterates the process to slow down inflation is continuing.

"But there's an awful lot of distance to travel on that story and we need to see how it evolves," Bailey says.

Dearbail Jordan
Senior business and economics reporter

Image source, PA Media

In the Bank of England news conference, the governor Andrew Bailey is discussing what risks there are to the UK economy and inflation from higher oil prices because of the Middle East conflict.

He repeats a point made in the minutes from the Bank’s latest rate-setting meeting, which said: “The more that the prices of oil, gas and refined energy products such as jet fuels and diesel rise, and the longer they stay high, the bigger the direct and indirect effects boosting inflation will be.”

The world still feels "uncertain" and "volatile", Bailey says compared to when the Iran war began five months ago.

He adds that food price rises are expected to be lower this year than originally thought.

That’s a bit of good news for households struggling with the cost of living.

Kevin Peachey
Cost of living correspondent

Some of the deals available to people willing to lock-in their savings for a fixed period of time are the best they’ve been for nearly two years.

The guaranteed interest paid on the top one-year bond is 4.91%, the highest for new customers since October 2024.

"This rare dose of good news for savers is somewhat of a silver lining after years of poor real returns,” says Rachel Springall, of financial information service Moneyfacts.

A lack of immediate access to savings won’t suit everyone. For lots of people, savings act as an emergency fund for fixing the car, or buying new school uniforms for the kids.

But shopping around, and moving around your savings, can bring better returns on that money. Loyalty tends not to pay.

A higher inflation rate can dilute the spending power of savings, so that will be closely watched.

Image source, EPA

Members of the Bank of England's Monetary Policy Committee are now giving a news conference following the publication of its interest rate decision this afternoon.

You can watch live at the top of this page.

Dearbail Jordan
Senior business and economics reporter

The post-interest rate press conference isn’t taking place in the Bank of England this time because they’ve got the decorators in.

Instead, the press conference will be held around the corner at Bloomberg’s offices which are a mix between very fancy and somewhere a Bond villain might hatch a plan for world domination.

Stay tuned.

Kevin Peachey
Cost of living correspondent

It is easy to think that an interest rate hold means nothing changes if you are soon to renew a mortgage.

But even though the Bank rate hasn't changed for some time, 30 lenders have increased their mortgage rates on new fixed deals in recent weeks.

The risk to borrowers of the next Bank rate change being up, rather than down, means it could be time to act, according to Adam French, of financial information service Moneyfacts.

"Anyone planning to take out a mortgage within the next six months should consider securing a deal sooner rather than later to protect themselves against further increases," he says. "If rates do fall before their mortgage completes, they can usually switch to a cheaper deal."

Image source, PA Media

Reacting to the Bank of England's announcement, shadow chancellor Mel Stride says that "rates are staying higher for longer because Labour have left us poorly prepared for global shocks".

"There's little trust Burnham's first budget won't do more damage," he says.

Image source, Getty Images

The Bank of England has said interest rates are currently at "about the right level" to reduce inflation back to the 2% target in the medium term.

It cites several points behind its decision to hold them:

• Inflation has fallen "a bit further" than expected to 2.6%, the Bank says, but higher energy prices and their knock-on effects could force businesses to increase their prices
• The conflict in the Middle East has disrupted energy transportation and supplies, pushing up households' motor fuel costs and utility bills
• Mortgage rates and borrowing costs are also higher than before the conflict
• It adds that there are more people looking for work than jobs, so employers may feel less pressure to increase salaries - thus containing the effects of energy price rises
• The Bank says it is monitoring the situation "very closely", adding that monetary policy cannot affect global energy prices

A highly conditional message emergingpublished at 12:25 BST

12:25 BST

Faisal Islam
Economics editor

This is a highly conditional message emerging from the Bank of England.

It is ready to raise rates, if the war in the Gulf continues to re-escalate, and leads to $100 per barrel oil and in particular elevated market prices for gas as Europe refills its storage capacity ahead of winter.

The one member of the nine member rate setting committee who changed her mind to vote for a rate hike, cited the collapse of the US-Iran memorandum of understanding.

The judgement on that changes day-to-day, depending on the responses of the US and Iran.

If, as some in the markets however firmly believe, and seemed to be the case just a month ago, a ceasefire returns and holds, then energy prices could fall rapidly and even according to a Bank of England deputy governor, justify thinking about rate cuts.

Kevin Peachey
Cost of living correspondent

The only thing that’s certain in the global economic outlook is uncertainty.

Investors are watching events in the Gulf and waiting to see whether there is any chance of a lasting truce. The movement of shipping has a direct impact on the cost of food and fuel.

So, for individuals, some big financial decisions - such as whether to move home - have been put on hold.

But it’s the cost of essentials that’s worrying lots of families. Debt charity StepChange suggests that one in 10 UK adults have used a credit card to pay for essential household bills in the past three months, the equivalent to around five million people.

Kevin Peachey
Cost of living correspondent

Investors look for any hints in the committee's thoughts as they study every word of the MPC meeting's minutes.

But one change is clear. Last month the nine-member committee voted 7-2 in favour of a hold. This time it was 6-3.

That signals the greater global uncertainty compared with last time, and some borrowers may worry the next move could be up rather than down.

Dearbail Jordan
At the Bank of England

The Bank of England examined a range of scenarios of what might happen to inflation and the economy depending on the Middle East conflict.

Inflation was previously expected to reach 3.5% this year. In a worst-case scenario, where oil prices reach $100 a barrel, the Bank now projects that inflation could reach 3.2% in 2026.

In a scenario where oil prices are around $76 before falling back to $71, inflation could reach 3%. While better than previously forecast, that remains above the Bank of England’s 2% target.

The UK economy is expected to grow by 1.1% this year, ahead of forecasts in April.

While the Bank’s rate-setting committee voted to hold borrowing costs, three of its nine members wanted to increase the rate to 4%.

Megan Greene, one of the three who voted for a rise, said that while there was uncertainty because of the Iran war, other "risks loom" over inflation.

These include a second choke point for global energy supplies in the Red Sea – Houthi rebels in Yemen recently attacked oil tankers passing through the region. She also warned about El Niño and a slowdown in AI-related hardware should supply constraints continue.

Dearbail Jordan
At the Bank of England

Image source, Reuters

Recent data showed that UK inflation eased to 2.6% in the year to June, when diesel and petrol prices fell during a brief lull in hostilities between the US and Iran.

Governor Andrew Bailey said: "Inflation has fallen faster than expected but the conflict in the Middle East continues to mean high and volatile energy prices. That will cause inflation to rise again this year.

"However, as the conflict unfolds, our job is to make sure any increase in inflation is temporary and that it comes back to our 2% target."

Dearbail Jordan
At the Bank of England

The UK economy is expected to grow by more than previously forecast this year, according to the Bank of England, although major uncertainties remain because of the Iran war.

The Bank said it expects the pace of price rises – known as inflation – to pick up due to volatile oil and gas prices caused by conflict in the Middle East.

But the peak will be slightly lower than previously thought and the UK economy will expand a little more.

The Bank voted to hold interest rates at 3.75% for a fifth time. They said any change in borrowing costs would depend on how long the energy shock will last – and how severe it is.

Oil and gas prices have whipsawed in recent days because of the on-again-off-again peace deal between the US and Iran.

On Monday, the price of crude fell as US President Donald Trump said there were "very friendly negotiations" happening between Washington and Tehran.

On Wednesday, oil shot up to more than $91 per barrel as Trump said of Iran: "We’ll be hitting them hard. They’re going to get a beating."

Recent data showed that UK inflation eased to 2.6% in the year to June, when diesel and petrol prices fell during a brief lull in hostilities between the US and Iran.

Dearbail Jordan
Senior business and economics reporter

UK interest rates have been held at 3.75% for a fifth time by the Bank of England as it continues to assess how volatile energy prices are affecting the economy.

The rate - which influences how much borrowers are charged for loans and mortgages as well as returns for savers - is at its lowest level since February 2023.

The Bank was widely expected to keep the rate unchanged despite a slowdown in inflation last month.

However, more recently, the on-again-off-again peace deal between the US and Iran has seen oil prices swing wildly, briefly touching $100 a barrel.

Stay with us as we bring you more on what this means for you.

We will be getting the Bank of England's decision on interest rates in just a few minutes, which analysts are expecting will be held at 3.75%.

The figure will be shared on this page as soon as we have it, with analysis from our team and what it means for your money.

Image source, Getty Images

The UK's economy grew 0.1% in May, marking a slight rebound from a small contraction in April.

Over the three months to May, the Office for National Statistics (ONS) said the economy had grown by 0.7% compared with the previous three-month period.

It called the three-month performance "robust", but noticed that the pace of growth had slowed in April and May.

For context:

• Economic growth is measured by the change in the country's gross domestic product (GDP), which includes the economic activity of companies, governments and people in a country, and is published by the ONS
• Most economists, politicians, and businesses like to see GDP rising steadily because it usually means people are spending more, jobs are created, more tax is paid, and workers get better pay rises