Bank of England Set to Hold Rates at 3.75% as Inflation, War Weigh

The Bank of England's Monetary Policy Committee is expected to leave its benchmark interest rate at 3.75% for a fifth straight meeting. The decision, due at 12:00 BST, comes as inflation remains above the central bank's 2% target and the Middle East conflict adds to economic uncertainty.

The MPC, composed of five women and four men, has kept the rate unchanged since it cut from 4% in February 2023. The current level is the lowest since then. Inflation in the UK ran at 2.6% in the year to June, down slightly from the prior month but still above the 2% target.

The rate is likely to rise in July. A 13% jump in domestic energy prices, driven by the Iran war's effect on wholesale gas, will hit millions of households in Scotland, England and Wales. The increase follows the conflict in the Gulf. Uncertainty over the chances of a lasting truce hangs over the MPC's deliberations, analysts said.

Katie Horne, from savings platform Flagstone, called a hold "a welcome dose of stability" for an economy that has seen a new government and a deteriorating geopolitical backdrop. "People have had more than enough uncertainty over the past year," she said. "Even a temporary pause eases the pressure a little."

A hold leaves tracker mortgage payments unchanged. More than eight in 10 mortgage customers have fixed-rate deals. The major UK lenders have been raising rates on new offers in recent days. The average rate on a new two-year fixed deal is 5.62%, the highest for more than a month, according to financial information service Moneyfacts. Lenders' funding costs have risen on renewed volatility in the Gulf, pushing the sector to move as a pack.

David Hollingworth, from mortgage broker L&C, said a hold is welcome but "market expectations will need to ease back before we can hope for a return to lenders cutting rates." The Bank of England's own projections suggest just over five million homeowners will see their monthly mortgage payments increase by the end of 2028.

For savers, the picture is brighter. The guaranteed interest paid on the top one-year bond has climbed to 4.91%, the highest for new customers since October 2024. "This rare dose of good news for savers is somewhat of a silver lining after years of poor real returns," said Rachel Springall of Moneyfacts.

Many analysts expect interest rates to remain unchanged for the foreseeable future. The next change is more likely to be a rise than a cut, they said. The MPC next meets in September.