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The Bank of England has held interest rates at 4% despite policymakers stating they believe inflation has “peaked”.

In a tight vote, the central bank’s Monetary Policy Committee (MPC) opted to keep the rate the same for the second consecutive time in its final meeting before the autumn Budget.

Members of the nine-strong committee voted five to four in favour of maintaining the rate, which is used to dictate mortgage rates and other borrowing costs, but pointed to a “gradual” easing of rates in the longer term.

The Bank suggested that inflation peaked in September, at 3.8%, and is expected dip over the coming months before settling at the 2% target rate in 2027.

It had previously predicted that inflation would peak at 4%.

Andrew Bailey, governor of the Bank of England, said: “We held interest rates at 4% today. We still think rates are on a gradual path downwards but we need to be sure that inflation is on track to return to our 2% target before we cut them again.”

The central bank also upgraded its outlook for the º£½ÇÊÓƵ economy this year but said the unemployment rate could rise by more than expected, according to new forecasts.

Gross domestic product (GDP) is predicted to reach 1.5% over 2025, higher than the 1.2% that the Bank last projected in August.

Growth will then slow to 1.2% in 2026, unchanged from its previous forecast.

But a weakening jobs market means that the rate of unemployment could rise to 5.1% by spring next year. This is higher than the 5% peak the Bank predicted before.

Employment growth is expected to remain “subdued” amid declining job vacancies and on the back of firms slowing hiring in response to higher taxes.