- Published
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.
asserted
Bank → publish → February
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.
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cuts → expect → globe
Interest rates affect mortgage, credit card and savings rates for millions of people.
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rates → affect → people
What are interest rates and why do they change?
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they → change → ?
An interest rate tells you how much it costs to borrow money, or the reward for saving it.
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it → tell → 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.
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they → charge → 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%.
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prices → move → %
When inflation is above that target, the Bank typically puts rates up.
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Bank → put → rates
The idea is to encourage people to spend less, reducing demand for goods and services and limiting price rises.
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idea → encourage → rises
What is happening to UK interest rates and inflation?
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What → happen → rates
The Bank of England's base rate rose to 5.25% in 2023.
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rate → rise → 2023
It remained at that level until August 2024, when the Bank started cutting.
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Bank → remain → August
Five cuts brought rates down to 4%, before the Bank held rates at its meetings in September and November 2025.
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Bank → bring → September
It then cut in December 2025 before holding rates steady in January, March, April, June and July 2026.
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It → cut → January
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.
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measure → drop → Ukraine
The Office for National Statistics (ONS), which tracks UK inflation, said the drop was a result of lower fuel and food costs, although these are widely expected to be temporary.
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these → track → 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.
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which → put → rises
What is expected to happen to UK interest rates?
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What → expect → rates
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.
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increase → expect → this
Oil prices initially rose sharply as a result of disruption to supplies in the region, but dropped back when various ceasefires were agreed.
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ceasefires → rise → region
Oil prices rose again when the US and Iran resumed attacks in the Strait of Hormuz in July.
"Inflation has fallen faster than we'd expected, but the conflict in the Middle East continues to mean high and volatile energy prices," said the Bank's governor, Andrew Bailey.
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governor → rise → prices
"That will cause inflation to rise again later this year.
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inflation → cause → ?
However the conflict unfolds, our job is to make sure any increase in inflation is temporary and that it comes back to our 2% target."
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it → unfold → target
UK household energy bills rose after the latest increase in the price cap which took effect on 1 July, which could push UK inflation higher.
uncertain
which → rise → inflation
Given the uncertainty, many analysts think rates are likely to stay at 3.75% for the foreseeable future.
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rates → give → future
How do interest rate cuts affect mortgages, loans and savings rates?
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cuts → affect → mortgages
Mortgages
Just under a third of households have a mortgage, according to the government's English Housing Survey, external.
uncertain
third → have → Survey
About 500,000 homeowners have a mortgage that "tracks" the Bank of England's rate.
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that → have → rate
That means any cut means a reduction in the monthly repayments on their outstanding loan.
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cut → mean → loan
An additional 500,000 homeowners on standard variable (SVR) rates rely on their lender choosing to pass on any Bank rate cut.
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lender → rely → cut
But the vast majority of mortgage customers - some 87% - have fixed-rate deals.
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majority → have → deals
While their monthly payments aren't immediately affected by a rate change, their future deals are.
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deals → affect → change
As at 30 July, the average rate on a new two-year fixed deal was 5.62%, up from 4.83% at the start of March, according to the financial information service Moneyfacts.
uncertain
rate → fix → service
For those looking for a five-year deal, the average rate was 5.66%, up from 4.95% over the same period.
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rate → look → period
About 800,000 fixed-rate mortgages with an interest rate of 3% or below are expected to expire every year, on average, until the end of 2027.
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mortgages → fix → 2027
Borrowing costs for customers coming off those deals are likely to rise sharply.
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costs → come → deals
You can see how your mortgage may be affected by future interest rate changes by using our calculator:
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mortgage → see → calculator
Credit cards and loans
Bank of England interest rates also influence the amount charged on credit cards, bank loans and car loans.
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rates → influence → cards
Lenders can decide to reduce their own interest rates if Bank cuts make borrowing costs cheaper.
However, this tends to happen very slowly.
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this → decide → rates
The Bank base rate also affects how much savers earn on their money.
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savers → affect → money
…and 12 more, not listed.
The Aporia
