The Bank of England has decided to leave the base interest rate unchanged at 3.75%, marking the fifth meeting in a row where borrowing costs have remained the same. The decision had been widely expected by economists, with ongoing uncertainty surrounding the conflict in the Middle East continuing to influence the economic outlook.
The Monetary Policy Committee (MPC), which is responsible for setting interest rates, voted 6-3 in favour of keeping rates on hold. While the majority supported maintaining the current rate, three members argued for a 0.25 percentage point increase, which would have taken the Bank Rate back up to 4%.
Bank of England Governor Andrew Bailey said inflation has eased more quickly than anticipated, but warned that rising and unpredictable energy prices linked to tensions in the Middle East are likely to push inflation higher again later this year. He stressed that the Bank’s priority remains ensuring any increase in inflation is temporary and that it returns to the long-term target of 2%.
The Bank Rate plays a major role in determining the cost of borrowing across the UK. It affects mortgage repayments, personal loans and credit products, while also influencing the interest rates offered on savings accounts. Although the base rate reached a peak of 5.25% in late 2023, it has gradually fallen as inflation has eased from the record highs experienced during the 2022 energy crisis.
Current inflation, measured by the Consumer Prices Index (CPI), stands at 2.6%. While this is significantly lower than the double-digit inflation seen a few years ago, it remains above the Bank of England’s target. Interest rates are typically kept higher when inflation remains elevated, as more expensive borrowing helps reduce spending and slow the pace of price growth.
Despite the decision to hold rates steady, some financial experts believe borrowing costs may not begin falling anytime soon. Analysts at wealth management firm Saltus suggest the market is increasingly preparing for the possibility that rates could rise before they eventually decline.
Henrietta Grimston, a chartered financial planner at Saltus, said financial markets have adjusted their expectations over recent weeks. While many economists still expect the Bank of England to keep rates unchanged for the rest of 2026, investors are now pricing in the possibility of as many as two rate increases by March 2027.
For homeowners, landlords and prospective buyers, this reinforces the likelihood of a prolonged period of relatively high borrowing costs. Anyone approaching the end of a fixed-rate mortgage or considering taking out a new loan may benefit from reviewing their options early, as interest rates are expected to remain higher than many had previously anticipated.
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