The Bank of England has held Bank Rate at 3.75% for a third meeting running, as it weighs falling energy prices against the risk that the Middle East conflict pushes inflation higher later this year.
The decision was not unanimous. The Monetary Policy Committee (MPC) voted 7–2 to hold, with two members, Megan Greene and Huw Pill, pushing for a quarter-point rise to 4%.
Why rates are on hold
The Bank's job is to keep inflation at its 2% target. It has chosen to wait rather than move in either direction, for three main reasons:
Inflation has fallen, but a rise is coming. Consumer Price Index (CPI) inflation dropped to 2.8% in May. The Bank expects it to climb back above 3% later this year as higher energy costs feed through to bills.
Energy prices have eased but remain volatile. Oil and gas prices fell after news of a possible Middle East peace deal, but both sit well above pre-conflict levels. The Bank cannot influence global energy prices, so it is focused on stopping the shock from becoming embedded in the wider economy.
The economy is already cooling. The labour market is loosening, demand is subdued and borrowing costs remain elevated. Together these should help contain inflation over time.
In its summary, the Committee said it judged a hold appropriate "taking all the risks to the economic outlook into account".
The seven members who voted to hold argued that recent data confirmed inflation was already on a downward path before the conflict and the higher interest rates households and businesses now face are directly slowing price increases.
The two dissenters were less convinced. Greene and Pill worry that households and firms are now more sensitive to price rises than in the past, raising the risk of so-called second-round effects, where higher costs feed into wages and then back into prices. They argued for a pre-emptive rise as insurance against that risk.
What it means for households
Mortgages - Borrowing costs are not changing as a direct result of this decision, though the Bank notes that fixed mortgage rates have already risen since the conflict began. Anyone coming to the end of a fixed deal should plan for higher repayments than they may have expected six months ago, but the market might now be cooling.
Savings - While lower inflation means that savings rates are now looking stronger for keeping the value of cash ahead of price rises. However, over the longer-term it is essential to consider if investing is a better opportunity for long-term wealth growth. In particular as rate expectations start to moderate it is likely banks will cut their interest rates in response.
The direction of travel - Markets had been expecting rate cuts before the conflict but those are now on hold for the time being. The Bank has stressed it stands ready to move in either direction as the situation develops. The next decision is due on 30 July 2026.
It is important to be aware of the current economic and financial conditions but this should not have a major impact on your long-term financial planning. However, if you have any questions or concerns get in touch to discuss your plans.