Bank of England likely to keep rates steady

The Monetary Policy Committee confirmed on Thursday that the Bank Rate would remain at 3.75%, extending the pause that has lasted since December 2025.

Decision and context

The BoE’s statement that inflation is likely to be higher later this year reflects the impact of higher fuel costs on the Consumer Prices Index (CPI). The latest CPI figure, released on Wednesday, showed a 3.1 % rise in August from 2.9 % in July, the highest rate in six months. The spike was attributed largely to rises in petrol, diesel and airfares, and the Bank noted that the inflationary pressure is still “set to remain well above” the 2 % target for some time.

Media additions

In the wider international context, the European Central Bank lifted its rate to 2.5 % and the US Federal Reserve cut its range to 3.75–4 %. The BoE’s decision is therefore part of a broader tightening cycle, but it has chosen to pause to assess whether the energy shock will prove temporary or long‑lasting.

Market reactions

Borrowing costs for households have risen in the wake of the decision. The average two‑year fixed residential mortgage rate is now at its highest level since 11 May, at 5.77 %, while the average five‑year rate sits at 5.83 %—the highest since 8 November 2023. These figures, sourced from Moneyfacts, underline the immediate impact of the BoE’s stance on the mortgage market.

Mortgage broker Coreco’s chief executive, Andrew Montlake, warned that “the inflation dragon has not been fully slain” and that lenders’ funding costs will keep under pressure, keeping cheaper mortgages hard to deliver. He urged borrowers approaching the end of a fixed‑rate deal to start looking early, secure an option and keep reviewing it.

On the savings side, the Bank’s decision has prompted savers to reassess the real return on their money. Chief savings officer Harriet Guevara of Nottingham Building Society advised households to regularly check that their savings are earning a competitive return and that they have the right balance between easy access and long‑term deposits.

Industry perspectives

Financial advisers and industry experts have highlighted the “higher for longer” narrative that now dominates the market. The IFA Magazine piece gathered views from advisers, noting that the decision keeps the BoE’s policy stance firmly in restrictive territory. Adviser Andrew Zanelli said that “the Bank of England was expected to cut rates at today’s meeting but in response to events in the Middle East a hold became the expectation and indicates policymakers are giving themselves time to see how the conflict plays out before deciding what direction rates should take next.”

Other advisers echoed concerns that the hold could push cuts further into 2026. Nick Henshaw of Wesleyan warned that a rate hold might prompt clients to maintain or increase cash holdings, but that staying too heavily weighted toward cash could mean missing opportunities for meaningful growth. He stressed the role of advisers in helping clients navigate market volatility.

Mortgage specialist Sarah Pennells noted that the decision has already fed through into the mortgage market, with hundreds of deals pulled and average rates edging up. She called for independent mortgage brokers to help investors navigate the fast‑changing market and identify deals that may not be available directly from lenders.

Kevin Brown of Scottish Friendly highlighted that “the world has changed dramatically” and that the Bank’s decision to hold is a cautious move to assess whether energy price shocks will persist. He emphasised the importance of a long‑term perspective for investors, warning that short‑term volatility is inevitable when driven by geopolitical events.

Future outlook

The MPC’s next meeting is scheduled for September, when new inflation, labour‑market and growth data will be considered. Market expectations now favour a pause until that meeting, with a potential cut only if inflation eases further. Analysts from Investec and Nomura have argued that a quarter‑point reduction to 3.75 % is still plausible, but the decision to hold suggests the BoE will wait for clearer signals.

In the meantime, the energy price shock remains a key factor. The BoE’s governor, Andrew Bailey, has warned that a protracted energy price crunch could force the Bank to take action on monetary policy. The Bank will be monitoring how energy prices feed through into the economy, labour market and employment data, and will adjust policy only if inflation moves closer to target.

Key figures

Timeline of key events

• Dec 2025 – BoE cuts the Bank Rate to 3.75 %.
• July 2026 – MPC holds the rate at 3.75 % for a sixth consecutive meeting.
• 9 Sep 2026 – Oil prices rise above $100 (£74) per barrel.
• Thu 6 Nov 2026 – MPC votes to keep the rate unchanged.

What to watch next

• September MPC meeting: New inflation, labour‑market and growth data will be the deciding factor for any future rate moves.

• Energy price developments: Ongoing volatility in oil and gas prices will continue to influence inflation expectations.

• Mortgage market response: Swap rates and fixed‑rate offers will adjust as lenders react to the BoE’s stance and energy‑driven inflation.

• Policy statements: Governor Andrew Bailey’s speeches and the BoE’s outlook releases will provide further insight into the Bank’s assessment of inflation risks.