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UK interest rates are set to stay at 4% as policymakers hold back from easing borrowing costs while inflation remains elevated, experts have said.

Most economists are expecting the Bank of England to keep rates unchanged on Thursday.

It comes after new official data showed the rate of Consumer Prices Index (CPI) inflation was unchanged at 3.8% in August, remaining at the highest level since the beginning of 2024.

Food and drink inflation also rose to 5.1% last month, from 4.9% in July, marking the fifth month in a row that the rate has accelerated.

Monica George Michail, associate economist for the National Institute of Economic and Social Research (NIESR), said the MPC is likely to be cautious about further rate cuts.

She said: “Given price pressures from higher labour costs, elevated inflation expectations, and upside risks from food prices, we think the MPC will keep interest rates on hold this Thursday.

“While a faster pace of rate cuts would support economic growth and lower the Government’s borrowing costs, the Bank will likely remain cautious in the next few months as it focuses on keeping inflation under control.”

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.

“Therefore, we expect the MPC to sit out the November and December meetings too and only resume rate cuts early next year.”

The Bank of England is forecasting CPI inflation to peak at 4% in September before gradually declining.

Andrew Bailey, the Bank’s Governor, said last month that “the path continues to be downwards” when it comes to interest rates but that there was “genuine uncertainty” about that.