London Daily

Focus on the big picture.
Thursday, Oct 01, 2026

UK interest rates: Prices to be higher for longer, Bank of England warns

UK interest rates: Prices to be higher for longer, Bank of England warns

Soaring food costs mean prices will remain higher for longer, the Bank of England warned, as it raised interest rates for the 12th time in a row.

Interest rates were hiked to 4.5% from 4.25% - the highest in almost 15 years - in the battle to slow inflation.

"It's taking longer for food price [falls] to come through," Bank boss Andrew Bailey told the BBC.

But Mr Bailey was more optimistic on how quickly the UK economy would grow, saying it would now avoid recession.

The Bank has been rapidly raising rates to try to slow the sharp rise in the cost of living.

UK inflation remains close to its highest level for 40 years, and is not dropping as quickly as predicted as prices in UK supermarkets remain high.

Some have questioned why a drop in the cost of wholesale food prices globally has not led to falls in the prices charged by UK supermarkets.

However, Mr Bailey said he did not think supermarkets and other grocers were charging customers more than they should.

"It actually doesn't look like that's going on," he told the BBC, adding that higher energy prices and the war in Ukraine had made it harder to import some foods and led to higher costs for retailers.

"Energy is quite a big element in the cost of food production and that's certainly had an effect in this crisis. Often producers have bought forward (supplies) at high prices because they were concerned about whether they were going to get the things they needed.

"But, as we said before, we are in very unusual times."

He said grocers had told him that they expected food inflation to "come down quite rapidly" throughout the rest of the year.

UK supermarkets have said there is typically a three to nine-month lag to see price falls reflected in shops.

On Thursday, the Treasury met with representatives from all major UK supermarkets to discuss food prices. The British Retail Consortium (BRC), which represents grocers, said the discussion was "very constructive".

"Retailers were able to explain the main drivers of food inflation, including high labour costs, energy prices, and manufacturing costs," it said.

It added that it had asked the government what it could do to mitigate the high cost of policy initiatives around packaging, recycling and the new Windsor Framework and UK border checks.


Inflation


The Bank now expects overall inflation - the rate at which prices rise - to drop to 5% by the end of this year, above the 4% previously predicted.

The increase in interest rates will mean higher mortgage, credit card and loan payments for some people, but the rise in rates could benefit savers.

By raising rates, the Bank expects people to have less money to spend and buy fewer things, which should help stop prices rising as quickly.

However, it also makes it harder for firms to borrow money and expand.

Around 85% of all mortgages are fixed-rate, according to the Bank, and about 1.3 million households are expected to reach the end of their deals this year and face a hike of up to £200 per month, based on current rates.

Compared with pre-December 2021 before interest rates began to rise, a typical tracker mortgage customer will be paying about £417 more a month, and variable rate mortgage holders about £266 more.

Mr Bailey said that while all inflation is difficult, rising food prices hit those on lower incomes harder because they spend a higher proportion of their money on food. "We are very, very conscious that all inflation is difficult and particularly for those least well off."

The Bank's chief economist Huw Pill recently sparked a backlash when he said people in the UK needed to accept that they would be worse off.

Mr Bailey said: "I don't think Huw's choice of words was the right one... to be honest and I think he would agree with me."


Better growth


Separately, the Bank of England was more positive on the outlook for the economy over the next few months - a stark contrast from its forecast six months ago when it said the UK would enter the longest recession on record.

"Modest but positive growth," is now expected, according to the Bank.

When the effects of strikes and the extra Bank Holiday for King Charles' Coronation are stripped out, the economy will have grown by 0.2% both in the first three months of the year and between April and June, the Bank predicts.

Falling energy prices as well as measures to help businesses and households announced in the Budget last month have led the Bank to change its forecasts.

The government has pledged to halve the rate of inflation by the end of the year.

Chancellor Jeremy Hunt said while it was "good news" that a recession was not longer forecast, the interest rate rise was "obviously be very disappointing for families with mortgages".

"But unless we tackle rising prices, the cost of living crisis will only carry on," he added.

Labour's shadow chancellor Rachel Reeves said the rise would leave people "wracked with anxiety".


Helen Parry, who works for DC Fruit and Veg in Stoke-on-Trent, said she had seen changes in her customers' choices and how they were avoiding treating themselves later in the month.

"They come, they do their shopping, they get what they need, and as the month goes on towards when their next payday is, it slows down a little bit," she said.

Newsletter

Related Articles

0:00
0:00
Close
Southwest England Faces Flood Alerts After Heavy Autumn Storms
UK Expands Funding for Rapid Electric Vehicle Charging Infrastructure
Welsh Government Approves Funding to Upgrade South Wales Transport
Northern Ireland Tensions Rise as Orange Order Rejects Drumcree Compromise
NHS Leaders Back Early Design of Proposed National Care Service
More Than One-Third of Regional UK Universities Face Financial Deficits
UK Current Account Deficit Narrows as Cross-Border Financial Flows Remain Strong
Bank of England and FCA Issue New Rules for Stablecoins and Digital Assets
MI5 Warns UK Universities Over Research Links With Chinese Institutions
UK Energy Price Cap Rises 4% as Electricity VAT Is Temporarily Suspended
Equity Calls for UK Personality Rights to Protect Performers From AI Replication
OpenAI Pauses Advanced Model Training Following Safety Concerns
Scottish Government Proposes Replacing 32 Councils With Larger Regional Authorities
Ofgem Raises UK Household Energy Price Cap by 4% From October
UK Counter-Terrorism Police Continue Investigation After Five Arrests Near RAF Fairford
OECD Cuts UK 2027 Growth Forecast to 1%
Labour Says State Pension Triple Lock Remains Protected Through Current Parliament
Andy Burnham Pledges National Care Service With Free Social Care in England
Six Flags Permanently Shuts Landmark X2 Roller Coaster Following Safety Scandals
Metropolitan Police Rule Out Terrorism in Golders Green Stabbing Investigation
Lithium-Ion Battery Identified as Cause of Fatal Merseyside House Fire
UK Department Rejects New Sea Use Framework Due to Stakeholder Fatigue
Major Thames Water Pipe Burst Causes School Closures in London
Aldi Commits £900 Million to Expand UK Supermarket Network
Scottish Affairs Committee Warns Skills Shortages Threaten Defence Sector Expansion
Parliamentary Committee Warns Northern Ireland Budget Deadlock is Stalling Economic Growth
NHS Hospitals in England Face Severe Shortages of Essential Medications
Home Secretary Signals Major Overhaul of UK Immigration and Leave to Remain Policies
Chancellor Promises New Job Schemes Alongside Strict Fiscal Discipline
Energy Secretary Proposes Taxpayer-Funded Green Transition and National Electricity Grid
UK Government to Renationalise Avanti West Coast Railway Franchise in March
Prime Minister Andy Burnham Pledges Major Social Care and Infrastructure Reforms
Five Suspects Released on Bail Following Alleged Bomb Plot Near RAF Fairford
UK Diesel Prices Hit Record High of 199p Per Litre
Transport for Wales and Network Rail Complete Electrification of South Wales Metro
Defra Expands Incentives for Sustainable Farming and Biodiversity in England
Northern Ireland Executive Approves Funding Package to Resolve Public Sector Pay Disputes
Universities UK Warns of Financial Insolvency Risks for Higher Education Institutions
UK Prisons Activate Emergency Protocols to Manage Capacity Pressures
UK Government Establishes New Safety Standards for Frontier AI Models
Home Office Tightens Skilled Worker Visa Requirements and Dependent Rules
Ministry of Defence Restructures Royal Navy Frigate Procurement to Prevent Overruns
UK Government Mandates New Housing Targets to Address National Shortage
UK and Scottish Governments Reach Agreement on North Sea Energy Transition
NHS Launches Digital Overhaul to Reduce Surgical Backlogs in England
Bank of England Holds Interest Rates as Service Sector Inflation Persists
UK Chancellor Announces Fiscal Consolidation Measures to Stabilize National Debt
RNLI Chief Executive Condemns Misinformation and Abuse Targeting Volunteer Crews
Metropolitan Police Charge Swindon Man with Assisting Foreign Intelligence Services
British Intelligence Report Warns Environmental Collapse Threatens Global Defense Infrastructure
×