The Bank of England has left UK interest rates unchanged at 3.75% for a fifth straight meeting, keeping them at their lowest point since February 2023. The decision comes after a period in which markets had expected cuts later this year or in 2026, but those expectations have been weakened by renewed inflation pressure linked to conflict in the Middle East and higher energy costs.
Interest rates matter because the Bank’s base rate influences what lenders charge households for mortgages, as well as the return on savings. The central bank uses rate changes to help keep inflation close to its 2% target. When inflation rises too far above that level, higher rates are meant to cool demand and slow price growth. The Bank lifted rates to 5.25% in 2023 and held them there until August 2024, when it began cutting. Since then, the rate has been reduced several times before being held through multiple meetings in 2025 and 2026.
What it means for mortgage holders
For homeowners, the effect depends on the type of mortgage they have. Just under a third of UK households have a mortgage, according to the English Housing Survey. Around 500,000 borrowers are on tracker deals, so their monthly payments move in line with the Bank rate. Another 500,000 are on standard variable rates, where any benefit from a cut depends on whether the lender decides to pass it on. But the biggest group, about 87% of mortgage customers, are on fixed-rate deals, so their payments do not change immediately when the base rate moves.
That does not mean fixed-rate borrowers are insulated for long. As existing deals expire, they must remortgage at prevailing market rates, which are currently much higher than they were earlier in the year. According to Moneyfacts, the average rate on a new two-year fixed mortgage stood at 5.62% on 30 July, up from 4.83% at the start of March. The average five-year fixed rate was 5.66%, compared with 4.95% in early March. The average two-year tracker rate was 4.51%. The report also says about 800,000 fixed-rate mortgages with rates of 3% or below are due to expire each year on average until the end of 2027, meaning many borrowers face significantly higher monthly costs when they refinance.
Inflation has eased sharply from its peak of 11.1% in October 2022, but it remains above target. The Consumer Prices Index was 2.6% in the year to June 2026, down from 2.8% the month before, helped by lower food and fuel costs. Even so, the Bank has warned that energy prices remain volatile, and analysts now think rates may stay at 3.75% for some time, with the next move more likely to be upward than downward.
Source: bbc.co.uk
