Bank of England expected to hold rates at 3.75% for fifth consecutive time

The Bank of England's Monetary Policy Committee will announce at noon on Wednesday that it is holding interest rates steady at 3.75% for the fifth meeting in a row. It is the lowest the benchmark rate has been since February 2023, and the decision reflects a central bank choosing caution over movement in an uncertain world.

The nine-member committee—five women and four men—meets eight times a year to set the rate that ripples through the entire financial system, determining what banks charge borrowers for loans and mortgages, and what they offer savers in return. The rate is the Bank's main lever for controlling inflation, which the committee targets at 2%. The most recent official figures showed inflation running at 2.6% for the year ending in June, still above the 2.3% target from the previous month. But the picture is about to worsen. Millions of households across Scotland, England, and Wales are about to feel the bite of a 13% jump in domestic energy prices—a shock driven by the war in Iran and its effect on wholesale energy costs. The conflict in the Gulf, and the uncertainty about whether any lasting peace might emerge, hangs over this month's decision and those to come.

For most borrowers, the hold changes nothing immediately. More than eight in ten mortgage customers have locked into fixed-rate deals, and those rates do not budge until the contract expires, typically after two or five years. But lenders have been raising the rates they offer on new deals in recent days. The average rate on a fresh two-year fixed mortgage now sits at 5.62%, the highest in more than a month, driven upward by the lenders' own rising funding costs and the volatility roiling Middle Eastern markets. The sector moves as one, each company reluctant to be swamped with applications while competitors hold back. The Bank of England's own projections suggest that just over five million homeowners will see their monthly repayments climb by the end of 2028.

For savers, the hold brings a rare bright spot. The interest rates available on fixed-term bonds have climbed to their highest levels in nearly two years. The best one-year bond now pays 4.91% guaranteed—the highest rate offered to new customers since October 2024. After years of meager returns, savers are finally seeing their money work for them again, even as borrowers brace for the squeeze ahead.

Analysts across the financial sector expect the committee to keep rates where they are for the foreseeable future, with the next move likely to be upward once the world settles down. Katie Horne, from the savings platform Flagstone, captured the mood: a new government finding its footing and the Middle East descending into deeper uncertainty make stability itself a kind of relief. "People have had more than enough uncertainty over the past year," she said, "and even a temporary pause eases the pressure a little." David Hollingworth, a mortgage broker at L&C, offered a more cautious view: the hold is welcome, but lenders will need to see market expectations ease before they begin cutting rates again. For now, the Bank of England is choosing to wait and watch—a decision that leaves millions of households suspended between the relief of no immediate change and the knowledge that change, when it comes, may not be gentle.