What's happening to UK interest rates and mortgage deals?
The Bank of England is expected to hold UK interest rates at 3.75% for a fifth time, affecting mortgage, credit card, and savings rates for millions of people.
Intelligence analysis by Llama
The Bank of England's base rate is expected to remain at 3.75% due to the economic fallout from the US-Israeli war with Iran, which has pushed up inflation across the globe.
Imagine you borrowed money from a friend, and you have to pay it back with some extra money added on top. That's kind of like what interest rates are. The Bank of England controls how much extra money you have to pay, and it affects how much you pay for things like mortgages and credit cards.
Analysis
What's happening to UK interest rates and mortgage deals?
The Bank of England is expected to hold UK interest rates at 3.75% for a fifth time, the lowest level since February 2023. Before the US-Israeli war with Iran, rates had been expected to fall in 2026, but the economic fallout from the conflict has pushed up inflation across the globe, making cuts unlikely.
Interest rates affect mortgage, credit card, and savings rates for millions of people. An interest rate tells you how much it costs to borrow money, or the reward for saving it. The Bank of England's base rate is what it charges other banks and building societies to borrow money, which influences what they charge their own customers for mortgages as well as the interest rate they pay on savings.
The Bank moves its base rate up and down in order to keep UK inflation — the rate at which prices are increasing — at or near 2%. When inflation is above that target, the Bank typically puts rates up. The idea is to encourage people to spend less, reducing demand for goods and services and limiting price rises.
What is happening to UK interest rates and inflation?
The Bank of England's base rate rose to 5.25% in 2023. It remained at that level until August 2024, when the Bank started cutting. Five cuts brought rates down to 4%, before the Bank held rates at its meetings in September and November 2025. It then cut in December 2025 before holding rates steady in January, March, April, and June 2026.
Meanwhile, the main UK inflation measure, CPI, has dropped significantly since the high of 11.1% recorded in October 2022 as a result of the war in Ukraine. It was 2.6% in the year to June 2026, down from 2.8% the previous month. The Office for National Statistics (ONS), which tracks UK inflation, said the drop was a result of lower fuel and food costs, although these are widely expected to be temporary.
What is happening to UK prices?
Published 7 days ago
What is expected to happen to UK interest rates?
At the start of the year, the Bank had been expected to cut interest rates twice in 2026, with the first drop predicted to come in March or April. However, the increase in fuel prices and inflation after the outbreak of the conflict has upended all of this. Oil prices initially rose sharply as a result of disruption to supplies in the region, but dropped back when various ceasefires were agreed.
On 18 June, Bank of England governor Andrew Bailey said that the price falls seen after the latest deal were 'encouraging'. But he warned that the higher energy prices of the previous four months meant 'there [was] already some inflationary pressure in the pipeline'. He said the Bank job was to ensure that didn't turn into 'sustained inflation above our 2% target'.
Oil prices rose again when the US and Iran resumed attacks in the Strait of Hormuz in July. UK household energy bills rose after the latest increase in the price cap which took effect on 1 July, which could push UK inflation higher.
Given the uncertainty, many analysts think rates are likely to stay at 3.75% for the foreseeable future.
Key points
- The Bank of England is expected to hold UK interest rates at 3.75% for a fifth time.
- Interest rates affect mortgage, credit card, and savings rates for millions of people.
- The economic fallout from the US-Israeli war with Iran has pushed up inflation across the globe, making cuts unlikely.
- The main UK inflation measure, CPI, has dropped significantly since the high of 11.1% recorded in October 2022.
- The Office for National Statistics (ONS) said the drop was a result of lower fuel and food costs, although these are widely expected to be temporary.
If the economic situation stabilizes and inflation returns to target, interest rates might be cut in the future, leading to lower mortgage and credit card rates.
If the conflict in the Middle East continues to drive up energy prices and inflation, interest rates might remain high for an extended period, making it harder for people to afford mortgages and other loans.
