Chancellor Rachel Reeves was accused of “reckless decisions which have pushed up inflation” after the Bank of England decided against cutting interest rates. The decision is a blow to homeowners, as it puts paid to hopes of lower payments for those on variable-rate mortgages or on fixed-rate mortgages that are about to come to an end. But the Bank said it was forced to keep the base interest rate at 4% because inflation is not yet under control.
Inflation is 3.8%, well above the target rate of 2% and the Bank said that it is expected to rise further, to 4%, before falling. Sir Mel Stride MP, Shadow Chancellor, said: “The fact interest rates are not coming down faster is a result of Labour’s reckless decisions which have pushed up inflation. The Prime Minister and Chancellor are distracted by scandal and working people are paying the price.
“There is deep nervousness about the drumbeat of bad economic news: inflation doubled, growth flatlining, and 150,000 jobs lost since the Budget. Only the Conservatives, under new leadership, will deliver a stronger economy.”
In a report published today, the Bank of England said: “CPI inflation was projected to stay around 3¾% over the second half of this year, with a temporary peak of 4.0% in September.”
It said: “This continued to reflect some near-term upward pressure on inflation largely from food and services prices, which was expected to be offset during 2025 Q4 by a slight decline in projected core goods and energy inflation.”
While the overall rate of inflation is 3.8%, the cost of food is rising more quickly according to official figures.
The rate of food and drink inflation rose to 5.1% in August, from 4.9% in July, as shoppers continued to face higher prices for items at the till.
It marks the fifth month in a row that the annual rate has increased and means it is the highest level recorded since January 2024.
Food items like vegetables, milk, eggs, cheese and fish helped put pressure on the overall rate of inflation in August.
ONS chief economist Grant Fitzner said: “The cost of airfares was the main downward driver this month with prices rising less than a year ago following the large increase in July linked to the timing of the summer holidays.
“This was offset by a rise in prices at the pump and the cost of hotel accommodation falling less than this time last year.
“Food price inflation climbed for the fifth consecutive month, with small increases seen across a range of vegetables, cheese and fish items.”
Interest rates were cut to 4% in August, from 4.25%, releasing some pressure for borrowers and mortgage holders.
But economists believe the MPC may avoid cutting rates at meetings in November and December, meaning the figure could be kept on hold until February.
Sandra Horsfield, an economist for Investec, said August’s inflation data “revealed price rises being stuck at uncomfortably high rates” with the overall CPI rate “considerably above” the Bank’s target level.
“The likelihood of a rate cut this week seemed in any case remote; but beyond that too, we judge that it will take evidence of falling inflation to persuade a majority on the MPC that further rate cuts are appropriate,” she said.
