Image source, PA Media

Today marks the final Bank of England interest rate decision before Andy Burnham's government's first Budget on 28 October, in which the government will set out its economic plan for the year.

Burnham, who previously refused to rule out tax rises, told reporters on Wednesday that the Budget would be "challenging" due to the "situation in the Middle East".

The prime minister added that the government will take "difficult decisions to make sure the economy remains on track", and that efforts to lower the cost of living "need to continue".

Chancellor John Healey has also not ruled out tax rises in his first Budget and has made it clear he will oversee "strong fiscal discipline".

Last week the chancellor repeatedly refused to provide details of any spending cuts in the Budget, but stated that "staying true to our values means being honest about the need to control government spending".

What does the bond sell-off pause mean?published at 13:58 BST

13:58 BST

Dearbail Jordan
Senior business and economics reporter

Alongside today's decision to hold interest rates at 3.75%, the Bank also said it would halt its so-called "quantitative tightening" programme.

It will pause its annual sale of government bonds - which are a kind of IOU that can be traded on the financial markets - and will instead sell off smaller chunks over eight years.

The Bank bought £895bn of mainly government bonds during periods of economic turbulence such as the global financial crisis and the Covid pandemic to help keep the economy on an even keel.

Since 2022, it has been offloading the bonds, including through sales. This has contributed to higher interest rates - or yields - on bonds, making it more expensive for the government to borrow money.

The Bank said discussions to put in place a plan to reduce the current £488bn stockpile of bonds had started a year ago, implying the change has nothing to do with current market turbulence.

Image source, Bloomberg via Getty Images

The nine members of the Bank of England's (BofE) Monetary Policy Committee were split 6-3 in whether to hold or raise interest rates - but opted to keep them steady.

Bank governor Andrew Bailey says he voted to hold because global energy costs have had a "limited effect" on price and wage setting. Let's look at some of the reasons - both for and against holding - that the other committee members gave:

Voted to hold rates

• Swati Dhingra says the Bank's rate "remains materially higher than in peer European economies", and that she continues to "see value in waiting for a clearer read" on how significant the shock to the economy from the Middle East conflict is
• The impact of the Iran war "has been more limited than expected" but "the case for raising Bank rate is building the longer the conflict continues", says Clare Lombardelli

Voted to increase rates

• Megan Green warns about inflationary pressures not just from the Iran war, but from El Niño (a natural weather pattern that can bring extreme weather) and AI-related supply constraints among others
• Green says waiting for "definitive evidence" of second-round effects (where economic shocks affect wages and raise inflation further) would put Bank policy "behind the curve"
• Raising the rate to 4.0% now would send "a clear signal" of the Bank's "commitment to achieved its price stability mandate amidst the fog of geopolitical conflict and data noise", says Huw Pill

Bank of England facing interest rate dilemma amid fragile economic growthpublished at 13:24 BST

13:24 BST

Theo Leggett
International business correspondent

The Bank of England has a dilemma.

Inflation is well above its target and rising. The normal response to this would be to increase interest rates.

In theory, that reduces the amount of money washing around the economy, dampens demand for goods and services and brings down prices.

This works well when the economy has plenty of momentum and demand is strong. But right now, growth is still relatively fragile.

Meanwhile a key factor pushing up prices is the cost of imported fuel, which has increased dramatically as a result of the conflict in the Middle East.

Higher rates would not tackle that particular issue, but they could well hit growth.

On the other hand, the Bank doesn’t have many weapons for fighting inflation – so it’s still a good bet rates will go up later in the year.

In the Bank of England's (BofE) summary of its meeting, it notes that - due to conflict in the Middle East - oil prices "remain more volatile and higher" than when it met previously in July.

Conflict in the Middle East appears to have "become more protracted than had been expected previously" and "without signs of a clear resolution", it says.

This is also raising food costs, it adds, as agricultural exports and fertiliser prices are disrupted.

In the comments from Bank governor Andrew Bailey - who voted to hold rates - he notes that if the conflict in the Middle East persists for an extended period, "as appears to be the case", then the Bank's policy "may have to tighten".

Kevin Peachey
Cost of living correspondent

Image source, Getty Images

There are about one million or so homeowners who would be directly affected by a change in the Bank rate, because they are on tracker or variable mortgage deals.

So, for them - and for others thinking of taking out other types of loans - there will be a bit of a sigh of relief following the decision to leave the Bank rate unchanged, rather than to raise it.

That relief might be relatively short-lived. Analysts still think rates could rise in the not-too-distant future. The Bank of England governor has even said there's a chance of a rise to come.

And, for all consumers, there's still the concern of the rising cost of living.

Household energy prices will rise further for millions of people in January, and there's a widespread expectation of food prices going up soon too.

In short, the essentials are getting more expensive.

Bank knows rate rise will squeeze consumers, but one could come before end of yearpublished at 12:35 BST

12:35 BST

Dharshini David
Deputy economics editor

As petrol and diesel prices climb, many may wonder why the Bank of England didn’t follow other central banks in raising rates.

But the Bank has to look beyond the forecourt.

Its priority is to make sure any rise in inflation is temporary, and avoid what is known as second round effects: today’s higher prices prompting bigger pay rises – which in turn trigger future bigger prices rises.

However, with a fragile jobs market, many of the Bank's rate setters are not sure that will happen.

And the weakness of food inflation in particular – 1.3% last month – have sparked suspicion that firms may be hesitant to pass on higher costs.

Plus the Bank knows that a rise in interest rates won’t solve higher global energy costs – rather, it squeezes consumers further.

Nevertheless, as the Middle East conflict persists and triggers more inflationary pressures, there was a strong hint from the Bank that a rate rise may come soon – possibly, analysts think, in November.

Image source, PA

Following the announcement the Bank of England is holding interest rates at 3.75%, its governor Andrew Bailey says the longer the volatility of global energy prices remain, the more likely it becomes that a rate rise will be needed.

"Today, we’ve held Bank rate at 3.75%. So far, higher global energy costs have had a limited effect on price and wage setting in the UK," Bailey says in a statement.

"But the longer this volatility persists, the bigger the impact it will have on inflation, and the more likely it is we will need to raise Bank rate to ensure that inflation falls back to our 2% target."

Faisal Islam
Economics editor

The Bank of England has kept interest rates at 3.75% as expected with a split of 6-3 to hold.

The Bank’s nine-member Monetary Policy Committee, on balance, has not seen the recent rise in energy prices pass through into wider inflationary pressures.

In a surprise move, the Bank of England has paused auctions of its remaining stock of £488 billion in government debt.

The Bank has put in place a long term plan to wind down the stockpile, built up during the financial crisis and Covid pandemic.

It has announced three notable moves, which require sign off from the Chancellor John Healey. First, £222bn long term debt held by the Bank will now be kept until it expires.

Second, £120bn of this will be kept permanently to back the Bank’s issuance of banknotes.

Lastly, the Bank will now not sell its government debt in the markets, but instead sell it effectively directly back to the government.

The net effect of all of this is that for now there will not be auctions in the markets, at a time of some painful rises in effective interest rates for governments. It might also help save some money in the short term for the public finances.

The Bank says the plan has been developed by it for the past year, based on winding down the emergency purchases of debt.

The Bank of England's Monetary Policy Committee was split 6-3 in its decision to hold interest rates at 3.75%.

Three members of the nine-member committee voted to raise its base interest to 4%, while the other six voted to hold it.

Dearbail Jordan
Senior business and economics reporter

The UK interest rate has been held at 3.75% by the Bank of England for the sixth time in a row despite rising inflation.

The decision was widely expected by economists but the seven-month long conflict in the Middle East has fuelled energy prices which, in turn, has stoked inflation.

Other major central banks have increased rates to counteract higher prices.

On Wednesday, the US Federal Reserve announced its first hike in three years while the European Central Bank has raised rates twice since June.

Inflation has been above the Bank of England's 2% target for nearly two years.

Image source, PA Media

Elsewhere in London, the new shadow chancellor Andrew Griffith is making his first speech since taking over the position from Mel Stride.

Asked if he would like to see the Bank of England slow down the selling of government bonds (we have more on this in our earlier post), he says that the Bank "must make its own decisions around how it operates in the market place".

But he adds that he would like to see long-term borrowing rates in England "not be significantly higher than countries like Greece or Italy".

"We can turn this around" and "start to balance the deficit", he says.

This, he says, will give the markets "the ability to see a way forward and to reduce the cost of long-term borrowing".

Dearbail Jordan
Senior business and economics reporter

You can never say with absolute certainty what the Bank of England will do when it comes to interest rates.

The consensus is it'll remain at 3.75%.

But that would make the Bank of England an outlier among its peers.

The European Central Bank has raised interest rates twice since June while on Wednesday night, the US Federal Reserve announced its first increase in three years.

So while the expectation is for a hold, its likely to split the committee of rate-setters at Threadneedle Street.

Kevin Peachey
Cost of living correspondent

We've had two weeks of mortgage rate rises across the major lenders, as they hike the cost of new fixed deals.

It is evidence of how lenders shift rates a lot - certainly more frequently than the MPC meets.

But despite the rises, as this chart shows, rates are still well short of the peaks of recent years.

The trouble for many homeowners and potential buyers is that, at the start of the year, they might well have expected mortgage borrowing costs to fall during 2026.

Kevin Peachey
Cost of living correspondent

Image source, PA Media

The Bank rate has a direct impact on mortgage repayments for borrowers on tracker and variable rate deals.

It also sets the tone for the direction of fixed-rate deals. The vast majority of homeowners have fixed deals, so the interest rate does not change until the end of the term, which is usually two or five years.

However, mortgage funding is complicated. So, pretty much all the major lenders have been raising the rates on new, fixed deals in recent days.

That's because the markets anticipate the Bank of England may need to increase the benchmark rate in the coming months, and so lenders' own funding costs are going up.

It means the average two-year fixed residential mortgage rate is at its highest since 22 May, at 5.83%, while the average five-year rate is at its highest since 6 November 2023, at 5.87%, according to financial information service Moneyfacts.

Dearbail Jordan
Senior business and economics reporter

Hello from the Bank of England in London, where BBC apprentice Anuk Weerawardana and I will find out if UK interest rates will rise, fall, or stay at 3.75%.

We'll also learn if the Bank is going to reduce or stop selling its massive trove of government bonds.

The Bank will make the announcement at midday - when BBC News will also publish a news story all about it. How does this happen at the same time?

The secret is journalists get to read the Bank's decision an hour or two before its wider release.

Because this is market sensitive information, the Bank of England locks us in its basement to prevent leaks.

Theoretically, a trader could make a lucrative bet on the decision if they had prior knowledge. To ensure nothing gets out, we have to hand over our mobiles and the wi-fi is switched off.

Between now and then, we'll read, ruminate and write, fuelled by lots of tea and too many biscuits. By the time 12:00 BST rolls around, the wi-fi is switched on - and our words wing their way to you.

See you on the other side.

On Wednesday, the US Federal Reserve raised its interest rate for the first time in more than three years. Our correspondent Samira Hussain looks at why:

Katie Hope
Business reporter

It’s not all about interest rates today, as the Bank of England will also tell us what it plans to do on bond sales.

The Bank bought a huge amount of bonds at a high price – essentially government IOUs – during the Covid pandemic and the financial crisis to keep the economy going.

It has since been selling them again, but at a loss due to higher borrowing costs.

If it decides to slow down the pace of sales - or even temporarily halt them - then these losses will be lower or stop altogether.

The move would be beneficial for the government’s finances, as the Treasury has to cover these losses.

So it could help Chancellor John Healey who is trying to free up money to fund spending at next month’s Budget.

Bank expected to hold rates - but there could be a surprisepublished at 11:01 BST

11:01 BST

Faisal Islam
Economics editor

I’m on my way into the Bank of England for an interest rate decision, as I have done - on and off! - for over a quarter of a century.

While the Bank is widely expected to hold rates at 3.75%, other major central banks - including the US Federal Reserve - are now raising rates, as rising energy prices feed into higher inflation.

The expectation among economists however is that the nine-member committee which decides rates will keep them on hold today, with a rise in November or December.

There is, though, the recipe for a surprise rise here.

The energy market scenario is tracking worse than the adverse scenario outlined by the Bank earlier in the year.

There have been splits in recent months, as the Bank weighs up whether rising inflationary pressures are largely contained in energy prices.

And the complex business of Bank of England’s sale of its stocks of government debts also looms large. It could help calm debt markets.

Government borrowing costs have risen substantially, into rather painful territory, in the UK and around the world in recent weeks.