Bank of England Holds Interest Rates at 3.75%
- Bank of England holds interest rates at 3.75%
- Inflation rises to 3.3% due to global energy prices
- War in the Middle East leads to energy price rises
- Mortgage lenders may price in base rate rises before they happen
- Bank of England aims to keep inflation at 2% target
The Bank of England has held interest rates at 3.75% due to rising inflation and global energy prices, officials said. The decision was made in a unanimous vote by the Monetary Policy Committee. The Bank had been expected to cut interest rates twice in 2026, but the recent conflict in the Middle East has pushed up global energy and commodity prices, increasing the risk of higher near-term inflation.
- The current inflation rate is 3.3%.
- The target inflation rate is 2%.
Reasons Behind the Decision
The war in the Middle East has led to energy price rises, which has caused inflation to rise to 3.3%, sources confirmed. The Bank of England aims to keep inflation at the 2% target, and holding interest rates is seen as a measure to control inflation. The Bank's governor, Andrew Bailey, said that the Bank would prefer to wait and see if price rises continue to ease this year. Meanwhile, mortgage lenders tend to price in base rate rises before they happen, so mortgage rates may increase before the base rate does.
Expert Views and Forecasts
A poll of 65 economists found that all expected the Bank of England to keep interest rates unchanged, but there was no consensus on what will happen afterwards, witnesses said. Nearly 40% of respondents predicted at least one hike, and only six expected a quarter point cut by the end of the year. Experts said that the Bank of England may increase interest rates to try to bring inflation down, but this is not expected until later in 2026. However, the Bank's latest guidance suggests that market expectations for future decisions can change quickly.
Historical Context and Previous Decisions
The Bank of England's base rate reached a recent high of 5.25% in 2023, but has been cut several times since then, officials said. The rate was cut to 4% before being held at the Bank's meetings in September and November 2025. The Bank then cut the rate again in December and held it at the meetings in January, March, and April 2026. The Monetary Policy Committee meets eight times a year to decide what Bank Rate is needed to return inflation to the 2% target.
Human Impact and Mortgage Rates
The decision to hold interest rates will have an impact on mortgage rates and the wider economy, government sources said. Mortgage lenders may increase mortgage rates before the base rate rises, which could affect homeowners and buyers. However, the Bank of England's aim to keep inflation at the 2% target is seen as a positive step for the economy in the long term. Despite this, the conflict in the Middle East and rising global energy prices remain a concern for the Bank and the economy.