The Bank of England is expected to hold UK interest rates at 3.75% for a fifth consecutive time, according to the BBC, as policymakers maintain a cautious approach amid global political uncertainty and persistent inflation. The Monetary Policy Committee (MPC), comprising five women and four men, will announce its decision at 12:00 BST, with analysts widely predicting no change.
Inflation and Economic Outlook
The Bank rate, currently at its lowest level since February 2023, is the MPC's primary tool for controlling inflation, targeting a 2% rate. However, the latest official figures show UK inflation stood at 2.6% in the year to June, down slightly from the previous month but still above the 2.3% target, as reported by the BBC. The inflation rate is likely to rise in July, as millions of households in Scotland, England, and Wales face a 13% increase in domestic energy prices. This increase is attributed to the impact of the Iran war on wholesale energy prices, BBC reported.
| Metric | Value | Source |
|---|---|---|
| Current Bank Rate | 3.75% | BBC |
| UK Inflation (June) | 2.6% | BBC |
| Inflation Target | 2% | Bank of England |
| Expected Rate Change | Hold (fifth time) | BBC |
The conflict in the Gulf and uncertainty over a lasting truce continue to hang over the MPC's decision, according to BBC.
Impact on Borrowers and Savers
A hold would leave monthly repayments unchanged for homeowners on tracker mortgages. However, the BBC notes that more than eight in 10 mortgage customers have fixed-rate deals, and major UK lenders have been increasing rates on new deals in recent days. The average rate on a new two-year fixed deal is 5.62%, according to financial information service Moneyfacts – the highest for more than a month. Rates are rising because lenders' funding costs are increasing due to renewed volatility in the Middle East, the BBC reported.
- Tracker mortgages: unchanged with a hold.
- Fixed-rate mortgages: rising; average two-year fixed at 5.62%.
- Lenders: moving as a pack to avoid being inundated with applications.
David Hollingworth, from mortgage broker L&C, commented: "A hold is still welcome, but market expectations will need to ease back before we can hope for a return to lenders cutting rates." The BBC also quoted Katie Horne, from savings platform Flagstone: "A new government finding its feet, and the situation in the Middle East becoming increasingly uncertain, mean that a hold on [the] base rate decision would be a welcome dose of stability. People have had more than enough uncertainty over the past year, and even a temporary pause eases the pressure a little."
Recent Bank of England projections suggest just over five million homeowners should expect their monthly mortgage repayments to increase by the end of 2028, BBC reported. For savers, a higher Bank rate or the likelihood of an increase can improve the interest rates offered on savings accounts.
MPC Outlook and Next Steps
The MPC meets eight times a year. Many analysts expect interest rates to remain unchanged in the foreseeable future, with the possibility of the next change being a rise, according to the BBC. The committee's decision will be closely watched by businesses and investors as it influences borrowing costs and returns on savings. The next milestone is the MPC decision announcement at 12:00 BST.
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