Interest rates expected to be held again by Bank of England
The Bank of England's Monetary Policy Committee is expected to hold its benchmark rate at 3.75% for a fifth consecutive meeting, citing global political and economic uncertainty.
Intelligence analysis by Llama
Bank of England policymakers are widely expected to keep the base rate at 3.75% as uncertainty over the Middle East conflict, energy prices, and a new UK government's footing weigh on the outlook. Inflation remains above target at 2.6%.
The Bank of England decides how much it costs to borrow money. Right now, they are likely to keep that cost the same because the world feels shaky, especially because of a war in the Middle East that has made energy more expensive. People with savings can earn a bit more, but people getting new mortgages are paying more too.
Analysis
A Cautious Hold as Fog Thickens
The Monetary Policy Committee is set to keep the Bank rate at 3.75%, the lowest level since February 2023, in what would be its fifth consecutive hold. According to the article, the decision reflects deep uncertainty over both the global political backdrop and the inflationary impact of the Iran war, which has pushed wholesale energy prices sharply higher. A 13% rise in domestic energy prices for households in Scotland, England and Wales is expected to feed into July's inflation print, complicating the path back to the Bank's 2% target.
Katie Horne, from savings platform Flagstone, told the BBC that "a hold on base rate decision would be a welcome dose of stability" given that "people have had more than enough uncertainty over the past year." With the current inflation rate at 2.6%, still above target, the committee appears to be prioritising patience over premature cuts, even though the headline rate is at a multi-year low.
Mortgages Climb Despite the Pause
A rate hold does not mean relief at the mortgage till. The article reports that more than eight in 10 mortgage customers are on fixed-rate deals, meaning the Bank's decision will not move their monthly payments immediately. But new fixed-rate products are getting more expensive: the average two-year fixed deal is now 5.62%, the highest in more than a month, according to Moneyfacts. Lenders cite rising funding costs driven by renewed Middle East volatility.
David Hollingworth, from broker L&C, said a hold is "still welcome" but warned that "market expectations will need to ease back before we can hope for a return to lenders cutting rates." The Bank's own projections suggest that just over five million homeowners should prepare for higher monthly repayments by the end of 2028, underscoring the long shadow of rate decisions past and present.
A Silver Lining for Savers
While borrowers feel the squeeze, savers are quietly enjoying the best fixed-bond deals in nearly two years. The top one-year guaranteed bond now pays 4.91%, the highest for new customers since October 2024. Rachel Springall, of Moneyfacts, described the offers as "a rare dose of good news for savers" after years of poor real returns, calling them "somewhat of a silver lining." The divergence between the Bank rate and the rates banks pass on to customers highlights how competitive pressures — and the shape of the yield curve — can deliver uneven outcomes across the financial system.
Key points
- Bank of England's MPC expected to hold base rate at 3.75% for a fifth time
- UK inflation stood at 2.6% in June, above the 2% target, with July likely to rise on a 13% energy price hike
- Average new two-year fixed mortgage rate has climbed to 5.62%, the highest in over a month
- Top one-year fixed savings bond now pays 4.91%, the highest since October 2024
- Middle East conflict and a new UK government are cited as reasons for caution on any rate move
If Middle East tensions ease and energy prices stabilise, analysts suggest a hold could give way to eventual rate cuts later in the year, reducing the cost of new mortgage deals. The current environment also offers unusually strong returns on fixed savings bonds, providing a boost to household balances.
Sustained Middle East conflict could keep wholesale energy prices elevated, pushing inflation above target for longer and forcing the MPC to consider rate rises rather than cuts. New fixed mortgage rates are already climbing, and more than five million homeowners may face higher monthly repayments by 2028.
