London Daily

Focus on the big picture.
Monday, Sep 08, 2025

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
Court Staff Cover Up Banksy Image of Judge Beating a Protester
Social Media Access Curtailed in Turkey After CHP Calls for Rallies Following Police Blockade of Istanbul Headquarters
Nayib Bukele Points Out Belgian Hypocrisy as Brussels Considers Sending Army into the Streets
Elon Musk Poised to Become First Trillionaire Under Ambitious Tesla Pay Plan
France, at an Impasse, Heads Toward Another Government Collapse
Burning the Minister’s House Helped Protesters to Win Justice: Prabowo Fires Finance Minister in Wake of Indonesia Protests
Brazil Braces for Fallout from Bolsonaro Trial by corrupted judge
The Country That Got Too Rich? Public Spending Dominates Norway Election
Nearly 40 Years Later: Nike Changes the Legendary Slogan Just Do It
Generations Born After 1939 Unlikely to Reach Age One Hundred, New Study Finds
End to a four-year manhunt in New Zealand: the father who abducted his children to the forests was killed, the three siblings were found
Germany Suspends Debt Rules, Funnels €500 Billion Toward Military and Proxy War Strategy
EU Prepares for War
BMW Eyes Growth in China with New All‑Electric Neue Klasse Lineup
Trump Threatens Retaliatory Tariffs After EU Imposes €2.95 Billion Fine on Google
Tesla Board Proposes Unprecedented One-Trillion-Dollar Performance Package for Elon Musk
US Justice Department Launches Criminal Mortgage-Fraud Probe into Federal Reserve Governor Lisa Cook
Escalating Drug Trafficking and Violence in Latin America: A Growing Crisis
US and Taiwanese Defence Officials Held Secret Talks in Alaska
Report: Secret SEAL Team 6 Mission in North Korea Ordered by Trump in 2019 Ended in Failure
Gold Could Reach Nearly $5,000 if Fed Independence Is Undermined, Goldman Sachs Warns
Uruguay, Colombia and Paraguay Secure Places at 2026 World Cup
Florida Murder Case: The Adelson Family, the Killing of Dan Markel, and the Trial of Donna Adelson
Trump Administration Advances Plans to Rebrand Pentagon as Department of War Instead of the Fake Term Department of Defense
Big Tech Executives Laud Trump at White House Dinner, Unveil Massive U.S. Investments
Tether Expands into Gold Sector with Profit-Driven Diversification
‘Looks Like a Wig’: Online Users Express Concern Over Kate Middleton
Brand-New $1 Million Yacht Sinks Just Fifteen Minutes After Maiden Launch in Turkey
Here’s What the FBI Seized in John Bolton Raid — and the Legal Risks He Faces
Florida’s Vaccine Revolution: DeSantis Declares War on Mandates
Trump’s New War – and the ‘Drug Tyrant’ Fearing Invasion: ‘1,200 Missiles Aimed at Us’
"The Situation Has Never Been This Bad": The Fall of PepsiCo
At the Parade in China: Laser Weapons, 'Eagle Strike,' and a Missile Capable of 'Striking Anywhere in the World'
The Fashion Designer Who Became an Italian Symbol: Giorgio Armani Has Died at 91
Putin Celebrates ‘Unprecedentedly High’ Ties with China as Gazprom Seals Power of Siberia-2 Deal
China Unveils New Weapons in Grand Military Parade as Xi Hosts Putin and Kim
Queen Camilla’s Teenage Courage: Fended Off Attempted Assault on London Train, New Biography Reveals
Scottish Brothers Set Record in Historic Pacific Row
Rapper Cardi B Cleared of Liability in Los Angeles Civil Assault Trial
Google Avoids Break-Up in U.S. Antitrust Case as Stocks Rise
Couple celebrates 80th wedding anniversary at assisted living facility in Lancaster
Information Warfare in the Age of AI: How Language Models Become Targets and Tools
The White House on LinkedIn Has Changed Their Profile Picture to Donald Trump
"Insulted the Prophet Muhammad": Woman Burned Alive by Angry Mob in Niger State, Nigeria
Trump Responds to Death Rumors – Announces 'Missile City'
Court of Appeal Allows Asylum Seekers to Remain at Essex Hotel Amid Local Tax Boycott Threats
Germany in Turmoil: Ukrainian Teenage Girl Pushed to Death by Illegal Iraqi Migrant
United Krack down on human rights: Graham Linehan Arrested at Heathrow Over Three X Posts, Hospitalised, Released on Bail with Posting Ban
Asian and Middle Eastern Investors Avoid US Markets
Ray Dalio Warns of US Shift to Autocracy
×