Kevin Peachey
Cost of living correspondent

Image source, EPA

In a move that was widely predicted, the Bank of England has held interest rates at 3.75% for a fifth consecutive time.

Six policymakers voted for a hold and three for a rise, which is a slight shift from the previous meeting when the vote was 7-2 in favour of a hold.

Although most analysts expect the rate to remain unchanged for the foreseeable future, the Bank's policymakers say they are ready to act depending on what happens in the Middle East and how deep and how long the impact on energy costs persists.

They expect the pace of price rises – as measured by inflation – to pick up owing to volatile oil and gas prices caused by the US-Iran war, although the peak will be slightly lower than previously thought. It also thinks the UK economy will grow faster than previously expected.

The Bank's governor, Andrew Bailey, says: "However the conflict unfolds, our job is to make sure any increase in inflation is temporary and that it comes back to our 2% target."

Bailey says he's spoken to the new chancellor, John Healey, but it is far too early for the new government's policies to be part of the Monetary Policy Committee's thinking. The next meeting is on 17 September.

We're ending our live coverage, but you can read more about the Bank's latest decision here.

Katie Williams
Live reporter

Image source, Getty Images

How much influence does government policy have on inflation - and by extension interest rates?

That's a question I asked Paul Dales, chief UK economist at Capital Economics, a moment ago.

He says at present, the "bulk" of the current economic situation is being driven by the "global picture" rather than local policy-making.

"We know why energy prices are high, and that's because of the conflict in the Middle East," he says.

Politicians are having an impact, he adds, "but not UK ones".

Shadow chancellor Mel Stride accused Labour earlier of leaving the UK "poorly prepared for global shocks".

As a reminder, the Bank of England sets interest rates independently from the government, basing its decisions on economic data.

Kevin Peachey
Cost of living correspondent

Quick recap: inflation is the rate of rising prices. Policymakers have an inflation rate target of 2% because a little bit of inflation is good for the economy.

So what the Bank thinks is going to happen to inflation is important.

The answer is that the rate is a bit lower now than it had expected but it will rise again later in the year.

Its Bank rate is the primary tool it has to control the inflation rate and that's why the Bank - facing this uncertain picture - is adopting a tone of being poised to act in the future.

The committee's next meeting, by the way, is on 17 September.

It's tricky to predict where inflation might be headedpublished at 14:37 BST

14:37 BST

Faisal Islam
Economics editor

Judging interest rates and where inflation might be heading is a tricky business right now.

There are several new factors that the Bank is considering.

Droughts around the world and the prospect of a "super El Niño" could hike food prices, and the price of technology could be affected by the current convulsions in the market for microchips.

While there are a lot of ifs, there is some slightly better news on UK prospects. The growth forecast been upgraded for this year, to a still modest 1.1%, while inflation is also now expected to rise less rapidly and peak earlier.

After the cut to energy VAT, typical energy bills under the energy cap are forecast to rise only marginally from £1663 to £1680 in October.

There has been some resilience to these shocks in the UK, so far. The effect is rather different to what occurred in the 2022 Ukraine energy shock.

It all depends on how long the Gulf situation lasts. Over to the White House.

Image source, Getty Images

Interest rates were held at 3.75% today, but could rise later this year.

Here's what it means for different groups:

Savers

Higher rates tend to be good news for savers, who can earn more on their money in the bank. However, inflation can erode the value of your savings.

Ideally, you want the interest you are earning to exceed the rate of inflation.

Borrowers

Higher rates are bad news, as you pay more in interest repayments.

It can take time for mortgage-holders to feel the effects as many homeowners are on a fixed rate for a period of, say, two or five years; those shopping for a new deal could feel the effects sooner.

Retirees

A rate hike could be good news for retirees with significant savings, and those buying an annuity - an annual income in retirement - could also benefit.

Annuity rates have been "consistently more generous since 2022" according to Laura Suter, director of personal finance at AJ Bell. This was around the time interest rates started going up after the Covid pandemic.

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.