The Bank of England has a target to keep inflation at its current rate of 2%. The traditional response to rising inflation is to put up interest rates.

This theory is that by making borrowing more expensive, people have less money to spend and in turn buy fewer things, reducing the demand for goods and leading to price rises to slow.

But it’s a balancing act. High borrowing costs can also lead to businesses borrowing less, making them less likely to invest and create jobs.

This can impact economic growth - which has been sluggish in the UK for some time.

Dharshini David
Chief economics correspondent

We learnt in June that inflation had returned to its 2% target – but it’s still not a done deal that the Bank of England is ready to start cutting rates.

The Bank’s job is not just to get inflation down – but to keep it there. And there are several factors it has been concerned could result in price pressures re-emerging.

These are the strength of wage growth, inflation in the service sector (the likes of hotels and restaurants) and economic growth.

Data on those have come in stronger over the last month than the Bank’s Monetary Policy Committee had expected.

On the other hand, goods inflation remains very weak, while unemployment is creeping up, which could dampen wage growth.

Economists think it is finely balanced whether the nine-strong panel will opt for the first cut in rates now.

Only two members voted for a cut in June; if a sufficient number haven’t joined their ranks this time, we may have to wait until September, or even November.

Gabrielle Sungailaite
BBC cost of living producer

Image source, Raphael Sheridan/BBC

Rupali Wagh is a co-owner of Tukka Tuk street food in The Cardiff Market.

She says that while business has picked up because of the summer weather, some customers are ordering less and trying fewer things from the menu.

“They’re very restricted with what they spend. I have never had so many conversations on the table about mortgages and expenses,” she says.

Rupali says she would like to see an interest rate cut, because it not only affects her business loans, but it would mean some customers would have more disposable income.

“We’re stuck with high interest rates and high expenses at the business, and business is not picking up as much as we thought,” she says.

“Right now, we can’t afford the rates.”

Gabrielle Sungailaite
BBC cost of living producer

Image source, Raphael Sheridan/BBC

James Willicombe, a manager at Kelly’s records in Cardiff says the business has been picking up as vinyl has become more popular.

“We are seeing more people wanting to come in and buy records,” he says. However, energy prices and rising costs have put pressures on the business.

“If interest rates come down, the more people will feel like that they’ll have more disposable income. And in the long run, that would mean the shop should be able to get busier.”

James says he would personally like to see interest rates cut as he’s looking to buy a house.

“It would make borrowing a bit easier.”

Tommy Lumby
BBC business data journalist

The Bank of England has held interest rates at a 16-year high of 5.25% since August 2023.This has caused financial pain for many people. Mortgage rates generally rise with the Bank's interest rate, which also affects renters as buy-to-let landlords may pass on their own increased mortgage costs.

Until late 2021, rates had been sitting at a historic low of 0.1% as the Bank made borrowing cheap in an attempt to stimulate an economy hit by Covid-19.

This was brought to an end as prices started to rise sharply due to a number of factors, including soaring energy costs partly driven by Russia's invasion of Ukraine.

If the Bank decides on a cut it would be the first one since 2020.

Peter Ruddick
Business reporter

Image source, epa

We're in countdown mode till exactly midday, when we discover what the Bank has decided. For some people, there could be a near immediate change to their personal finances.

More than half a million homeowners have a mortgage rate that "tracks" the Bank of England.

A 0.25% cut could take their monthly repayments down by around £28 on average. Anyone with a standard variable rate mortgage could see a £15 benefit.

The vast majority of mortgage holders are on a fixed deal though. No immediate change for them, although fixed rates being offered by lenders have been heading lower in recent days. They could fall further if the Bank announces a cut.

However, the Bank reckons three million households will still see their payments rise when their deals end. Because we're not expecting a quick return to the record low rates that were around when mortgage holders last fixed.

Interest rates are the extra money that gets charged on top of a loan or paid on top of savings.

For example, if you borrow £100 from a bank and it charges a 5% interest rate, you will pay back £105. If you have £100 in savings and the interest rate is 5% your savings will rise to £105.

The Bank of England is the UK’s central bank and it is independent from the government.

It sets a “base rate” and this influences how much lenders will charge borrowers who take out a mortgage, a loan or a credit card.

So if the Bank of England puts its interest rate up, that means you'll pay more interest on borrowed money - unless you’ve borrowed it at a fixed rate.

Interest rates are often a big deal for people with mortgages, especially those who do not have a loan with a fixed rate, or have a fixed-rate deal ending soon.

But it is not all bad news, as higher interest rates should mean an increase in the interest people earn on savings - though banks can be slow to pass on these rises.

Read more: How an interest rate rise affects you and your money

Faisal Islam
Economics editor

Knife-edge, too close to call, a photo finish is expected at noon when the nine members of the Bank of England’s rate setting committee will release their decision on whether to hold rates again at their 16-year high, or to start to cut interest rates.

Homeowners, savers and the new government will be watching the Bank's decision keenly.

While there were just two votes in favour of a cut at the last meeting in June, three further members of the committee were close to cutting.

The Bank also releases its quarterly forecasts for the state of the economy, which can be a good moment to explain a change of direction.

Many banks have already started to cut fixed mortgage rates in anticipation of lower interest rates. The new government would welcome this boost to consumer confidence, and to their own coffers thanks to a lower cost of servicing the national debt.

As important as the actual decision will be the indications for what happens to interest rates over the next few months.

Dearbail Jordan
Business reporter

Earlier, our reporter Dearbail Jordan sent this before heading into the Bank of England's briefing:

Good morning from a very muggy City of London where I’m about to enjoy the cool embrace of the Bank of England’s marbled interior.

It’s a bumper announcement this time around – we get the interest rate decision and the Bank’s quarterly inflation report – so we are given two hours instead of the usual one to try and translate economy-speak into normal people language.

To do this, the Bank of England locks the media in its basement. This is because the information is highly sensitive and there can’t be any leaks before the official announcement comes out at noon.

Therefore, journalists have to put our phones etc in 1970s-style school lockers before we’re accompanied to a room, helmed by a security guard, where we are literally locked-in with reams - and I do mean reams - of Bank papers.

We’re allowed our laptops but we are not given the wi-fi password until just before 12.00pm. Seconds later, you should be reading our stories and we’ll be trooping back upstairs to the Bank of England press conference.

See you on the other side.

Hello and welcome to our live coverage of the Bank of England’s decision on interest rates.

Economists are split as to whether the Bank will cut rates this time but we’ll find out at 12:00.

The BoE’s rate, which dictates borrowing costs for things like mortgages and loans, and also savings returns, is currently 5.25% - the highest level for 16 years.

We’ll bring you the decision as soon as we have it and our team of experts will explain what it means for your finances.