Bank shows appetite to ease interest rates eventuallypublished at 13:13 BST 18 September

13:13 BST 18 September

Faisal Islam
Economics editor

As expected the main interest rate was kept on hold at 4%

But in an indication of an appetite to still to cut at some point, two of the nine-member Monetary Policy Committee voted to bring the rate down to 3.75%.

Governor Andrew Bailey said “we are not out of the woods yet” on inflation, so “any future cuts will need to be made gradually and carefully”.

The bigger decision made today was to slow the rate at which the Bank of England sells its stock of UK bonds, amassed during the financial crisis and pandemic.

This reversal of quantitative easing - known as quantitative tightening - had been running at the rate of £100bn a year.

This is being slowed to £70bn a year over the coming period, and in particular will result in fewer auctions of long term government debt.

The governor said this was to help wind down its crisis interventions “while minimising the impact on gilt markets”.

There has been a marked increase in the effective interest rate charged for very long term government debt.

The Bank said this was a global phenomenon but there have also been changes to the market for long term debts in the UK, with less buying from traditional buyers such as defined benefit pension funds.

• We're ending our live coverage now. Read more on today's decision in our main news story

• The Bank of England has decided to hold interest rates at 4%, meaning it remains at its lowest level since February 2023

• Analysts had not expected a cut, given that prices are rising at nearly twice the Bank's target rate of 2% - "we're not out of the woods yet," was the line from the Bank's governor on inflation

• The Monetary Policy Committee - the group of economists that sets the rates - voted seven-to-two to maintain interest rates at the current level
• So, will rates be cut again this year? The committee says a "gradual and careful approach... remained appropriate"
• The verdict from our business colleagues: as you were, then

• Alongside the rates decision, the Bank also said it would reduce the amount of government debt it holds - more on that here
• There's been no word yet from the government. Though the Tories' Mel Stride has pointed to "deep nervousness about the drumbeat of bad economic news"

Michael Race
Senior business and economics reporter

Image source, PA Media

It's the main question we all ask, but the answers depend on your individual circumstances.

Broadly speaking though, when rates are increased, borrowing becomes more expensive and returns on savings go up. The opposite happens when rates are lowered.

To put this into context, mortgage rates are often one of the first things a lot of people mention when interest rates are decided but only a third of people have a mortgage.

And the vast majority of mortgage holders are on fixed deals, so regardless of today's decision there is no change for them.

Those looking to buy a home, coming to the end of a fixed deal, or on a tracker mortgage, will likely be watching today’s news closely, but given rates were held today, again, there'll be no change.

When it comes to day-to-day spending, higher rates tend to mean increased charges for unsecured loans and credit cards.

Interest rates remaining at 4% could also be welcome news for those on the cusp of retirement, who might get a better annuity rate than if they were cut.

This determines how much guaranteed income you get, when you swap some or all of your pension pot for a secure income.

Following the news that the Bank of England had decided to hold interest rates at 4%, the pound weakened.

The drop is only slight, at 0.1%. That means £1 is now equivalent to €1.151 and $1.362.

Michael Race
Senior business and economics reporter

Given the hold today, many will be wondering if/ when a cut is coming next.

But some economists are predicting rates will be kept at 4% for a while longer, possibly for the rest of this year (there is two more decision meetings left, in November and December).

The hawkish vibes are due to concerns over inflation being high, according to Paul Dales, chief UK economist at Capital Economics.

"As a result, we continue to think the Bank won’t cut rates again until February," he adds.

Image source, PA Media

We're yet to hear any reaction from the government on the decision to hold interest rates, but that's not stopping the Tories.

Shadow chancellor Mel Stride says that only the Conservatives, under Kemi Badenoch's leadership, will rebuild a stronger economy, in a post on X.

Stride says interest rates remain high - at 4% - because "Labour fuelled inflation".

"There's deep nervousness about the drumbeat of bad economic news: inflation doubled, growth flatlining, 150,000 jobs lost since the Budget," Stride adds.

Dearbail Jordan
Senior business and economics reporter, reporting from the Bank of England

Alongside the interest rate decision, the Bank also announced it would reduce the amount of government debt it holds at a slower pace, coming just weeks after turmoil in the financial markets.

As Chancellor Rachel Reeves prepares to announce the Budget in November, a higher cost of servicing Britain’s vast pile of debt risks reducing the amount of headroom she has against her self-imposed tax and spending rules.

The Bank of England bought £875bn worth of bonds - essentially government IOUs - during times of crisis to support the economy.

It has been reducing the amount of debt it owns – which are mainly government bonds – by around £100bn a year. But it said on Thursday that from October onwards, it would reduce that to £70bn.

"The decision to slow the pace of its active sales should help ease some of the pressure on the UK bond market in the run up to the Budget," says Yael Selfin, chief economist at KPMG UK.

Dearbail Jordan
Senior business and economics reporter, reporting from the Bank of England

Image source, Reuters

Following the announcement of the interest rate decision, the Bank of England governor warns “we’re not out of the woods yet” in terms of rising inflation.

Andrew Bailey adds: “Any future cuts will need to be made gradually and carefully.”

The Bank expects inflation to return to its key target but remains cautious on when it will again trim borrowing costs.

Michael Race
Senior business and economics reporter

As I mentioned earlier, the Bank has stated rate cuts will be made gradually and cautiously.

In today's minutes of its meeting - where it decided to hold rates at 4% - it says the committee "judged that a gradual and careful approach" to the further rate cuts "remained appropriate".

As you were, then.

If you’re in need of a refresher, here’s a jargon-buster on some of the key terms you need to know today.

Interest is the extra amount you get charged when you borrow money. If someone lends you £10 at a 10% interest rate, you'll pay them back £11.

That's the £10 you borrowed plus an extra £1 (10% of £10) in interest.

Meanwhile, inflation is the increase in the price of something over time. If a bottle of milk costs £1 but is £1.05 a year later, then the annual milk inflation 5%.

Yesterday, official figures showed that inflation remains at 3.8% - driven up largely by food prices, which rose for the fifth month in a row in August.

Michael Race
Senior business and economics reporter

Compared to the knife-edge decision the last time round, today's was pretty unanimous.

The Monetary Policy Committee (MPC) - the group of economists which sets interest rates - voted by majority of seven to two votes to keep interest rates at 4%.

Two members voted to reduce rates to 3.75%

Michael Race
Senior business and economics reporter

The Bank of England has kept interest rates at 4%.

The decision was widely expected and means rates remain at the lowest level since February 2023.

Stay with us. We'll explain what this means for you and your money shortly.

Dearbail Jordan
Senior business and economics reporter, reporting from the Bank of England

Image source, PA Media

In fewer than five minutes' time, the Bank of England will announce its interest rate decision - it's forecast to be a wee bit dull, to be brutally honest.

Economists widely expect the Bank of England to keep borrowing costs at 4%. We should point out that it is never 100% certain what the Bank will do - but the consensus is pointing to a hold.

What’s more interesting is what happens next.

After Thursday, the Bank has just two more rate decisions to make this year - one in November before the Budget on 26 November and another in December.

Inflation has been rising since April and the Bank expects it to peak at 4% in September before falling.

Some economists reckon inflation will drift lower as elements such as wage growth slows. The Bank will want to see a sustained slowdown in inflation before it trims interest rates again.

Kevin Peachey
Cost of living correspondent

Most people are borrowers and savers, so any interest rate decision can have a conflicting impact on their finances.

But official figures published today show how there was a real appetite for tax-free saving when rates were higher.

In 2023-24, an extra 2.6 million people saved or invested money in Individual Savings Accounts (Isas), according to new data from HM Revenue and Customs (HMRC).

Fast forward to now, and the interest rates available to savers are less generous. In other words, the money you get from providers has dropped.

There's also plenty of speculation over whether Chancellor Rachel Reeves will change the rules on cash Isas in November's Budget.

Michael Race
Senior business and economics reporter

Inflation - the main measure of the cost of living in the UK - held steady last month, but revealed in the data the rising cost of a food shop.

The rise in food prices is a big contributor to how we feel when it comes to our personal finances. Everyone needs to buy food, so you notice when prices in the shops are going up.

Food inflation is currently at 5.1%, which means a supermarket shop that cost you £100 this time last year, for example, would be £105.10 now.

Beef, butter, milk and coffee are just some of the main goods going up in price.

There are various reasons why this is happening - higher energy prices often drive up costs for everything, but also there have been increases in the minimum wage and National Insurance for employers, which is likely to have been passed on through price rises for customers. Poor harvests due to the extreme warm weather are now affecting prices too.

The Bank of England thinks overall inflation will peak at 4% in September, which will be double its target of keeping it at 2% - that is why a hold is expected today as it looks to slow the pace of price rises.

Michael Race
Senior business and economics reporter

Image source, EPA

Mortgages and savings are two areas which attract a lot of attention when it comes to interest rate decision days.

So what are the current rates on offer?

The average two-year fixed mortgage rate is 4.98%, which is marginally lower than the average five-year deal at 5.02%, according to financial information company Moneyfacts.

That means short-term mortgage deals now typically offer the cheapest rates for homeowners for the first time in nearly three years.

September 2022 was the last time this was the case - so this marks a return to relative normality for the mortgage market after what has been a turbulent few years.

When it comes to savings, the average one-year fixed cash Isa rate today is 3.89% and the average easy access Isa rate is 2.76%.

Saving rates have been on the decline in recent times, as interest rates have been lowered.

Michael Race
Senior business and economics reporter

I've covered most of the interest rate decisions this year and the phrase which has consistently been used by the Bank's governor Andrew Bailey is that rates are on a "gradual" downward path.

The same wording might be used today, or it might change (we'll be watching closely). The Bank has been clear on the need to tread carefully when deciding to lower rates, given inflation - the rate prices are rising at annually - is currently 3.8%, which is almost double its 2% target.

Rates are expected to be held today as to the Bank tries to bring down that rate towards its target and to manage the rising cost of living.

Away from inflation, the Bank also looks at the jobs market and wider economic growth, both of which are looking sluggish at the moment.

It's a balancing act.

Dearbail Jordan
Senior business and economics reporter

An interest rate is what it costs to borrow money or the return you get on your savings.

The interest rate set by the Bank of England is what it charges High Street banks and building societies to borrow money.

It dictates how much those banks and building societies charge their own customers to lend to them for things such as mortgages. It also determines the interest that savers can earn.

One of the Bank of England’s key responsibilities is to “maintain price stability” - which basically means keeping inflation at or close to a target of 2%. It does this by raising, holding or cutting interest rates.

If inflation is way above target, for example, the Bank lifts interest rates which makes borrowing more expensive and should, in theory at least, dampen consumer spending and encourage people to save their pennies.

UK inflation had been falling and since August 2024, the Bank cut interest rates five times.

But in the past few months, inflation has been ticking higher meaning that any imminent rate cuts from the Bank of England are far from certain.

Dearbail Jordan
Senior business and economics reporter, at the Bank of England

Hello from the Old Lady of Threadneedle Street. Not me - it’s a nickname for the Bank of England where I am this morning to report on the latest interest rate decision.

On days like this, journalists are invited into the Bank of England for what’s known as a lock-in. And we are literally locked in a room in the Bank’s basement for an hour, without our phones, to prevent any leak of this market sensitive information.

On the upside though, the Bank does provide free biscuits and pots of coffee.

The lock-in means we get to read what the nine members of the Bank’s rate-setting committee have decided and write a news story before the announcement is made to the rest of the world at midday.

See you on the other side.

Kevin Peachey
Cost of living correspondent

Interest rates are widely expected to be held at 4% when policymakers at the Bank of England meet today.

The Bank rate, which heavily influences borrowing costs and savings rates, was cut from 4.25% to 4% by the Bank's Monetary Policy Committee (MPC) at its last meeting in August.

It took the rate down to its lowest level for more than two years, but many analysts believe there will be no further cuts during the rest of this year.

The decision will be revealed at 12:00 BST and comes after official data on Wednesday showed prices were rising at nearly twice the target level, driven by the higher cost of food.

Our teams at the Bank of England and our London newsroom are poised to bring you the decision as soon as it lands - and, crucially, break down what it means for you and your money. Stay with us.