The Bank of England has held UK interest rates at 3.75% for a fifth time, keeping them at the lowest level since February 2023. Before the US-Israeli war with Iran, rates had been expected to fall in 2026, but the economic fallout from the conflict has pushed up inflation across the globe, making cuts unlikely. Interest rates affect mortgage, credit card and savings rates for millions of people.
An interest rate tells you how much it costs to borrow money, or the reward for saving it. The Bank of England's base rate is what it charges other banks and building societies to borrow money, which influences what they charge their own customers for mortgages as well as the interest rate they pay on savings. The Bank moves its base rate up and down in order to keep UK inflation — the rate at which prices are increasing — at or near 2%.
When inflation is above that target, the Bank typically puts rates up. The idea is to encourage people to spend less, reducing demand for goods and services and limiting price rises. The Bank of England's base rate rose to 5.25% in 2023.
It remained at that level until August 2024, when the Bank started cutting. Five cuts brought rates down to 4%, before the Bank held rates at its meetings in September and November 2025. It then cut in December 2025 before holding rates steady in January, March, April, June and July 2026.
Meanwhile, the main UK inflation measure, CPI, has dropped significantly since the high of 11.1% recorded in October 2022 as a result of the war in Ukraine. It was 2.9% in the year to July 2026, up from 2.6% the previous month. The Office for National Statistics (ONS), which tracks UK inflation, said the uptick was a result of higher energy costs.
The US-Israel war with Iran has put up energy and fuel costs around the world which has increased the pace of price rises more generally. At the start of the year, the Bank had been expected to cut interest rates twice in 2026, with the first drop predicted to come in March or April. However, the increase in fuel prices and inflation after the outbreak of the conflict has upended all of this.
Extract — continue reading at the source.
