The Bank of England has kept Bank Rate at 3.75% amid concern that higher energy costs could push inflation upwards later this year.
The Monetary Policy Committee voted by six to three to leave the rate unchanged at its meeting ending on 29 July. The three dissenting members – Megan Greene, Catherine Mann and Huw Pill – favoured an increase of 0.25 percentage points to 4%.
The decision marks the fifth consecutive hold, but the split is more hawkish than June’s 7–2 vote and indicates growing support for an increase.
Consumer price inflation fell from 2.8% in May to 2.6% in June, its lowest level since December 2024, although it remains above the Bank’s 2% target. Official ONS figures show prices rose by 0.1% during June.
ENERGY RISKS DOMINATE
The Bank says crude oil and refined energy prices remain volatile and above their levels before the conflict in the Middle East.
Brent crude futures stood at $84 a barrel on 28 July, while the UK front-month natural gas future was 136p per therm. Motor fuel prices contributed 0.6 percentage points to June’s inflation rate.
Inflation is expected to rise later this year as the direct and indirect effects of higher energy costs feed through to households and businesses.
However, the MPC has found little evidence so far of higher energy costs producing second-round effects in wage and price-setting. Recent data continues to show underlying disinflation, supported by slowing wage growth and a weakening labour market.
Bank staff expect unemployment to rise to 5% during the third quarter and 5.1% in the final three months of 2026.
Six MPC members judge that holding Bank Rate, alongside the tightening of financial conditions since the conflict began, provides sufficient protection against current inflation risks.
The three members favouring an increase are less reassured by the underlying disinflationary process and argue that acting pre-emptively could reduce the risk of higher energy costs becoming embedded in wages and prices.
The MPC says risks to inflation are tilted to the upside compared with the central projection in its July Monetary Policy Report and that it stands ready to act if necessary to return inflation sustainably to its target.
INDUSTRY REACTION
Nathan Emerson, CEO at Propertymark, says: “By holding interest rates, the Bank of England has opted for a measured approach as inflation remains above its 2% target. While price pressures have eased in recent months, today’s decision reflects the need to ensure inflation continues moving in the right direction before further policy changes are considered.
“A stable base rate provides greater certainty for the housing market. It gives lenders more confidence to continue offering competitive mortgage products while allowing buyers to make informed financial decisions. Savers also continue to benefit from relatively attractive returns on savings, helping some prospective homeowners build towards a deposit.
“However, inflationary pressures have not disappeared. Higher household costs, including July’s increase in the energy price cap, alongside ongoing uncertainty in global energy markets, mean the Bank of England is likely to continue taking a cautious, data-led approach over the coming months.”
FUNDAMENTALS UNCHANGED BY POLITICAL SHIFT
Jason Tebb, President of OnTheMarket, says: “As expected, the Bank of England held interest rates at 3.75 per cent for another month.
“With the rate of inflation easing to 2.6% in the 12 months to June, down from 2.8% the previous month, this gentle decline has helped persuade the rate setters to continue with their ‘wait and see’ approach.
“Although six members of the Committee voted for a hold while three favoured a quarter-point increase to 4%, compared with the 7-2 split at the last meeting, for now the majority still favour the current position.
“While interest rate cuts are helpful in boosting buyer and seller confidence, this fifth consecutive base rate hold suggests a steadiness and stability which is no less welcome, particularly as we welcome another new Prime Minister.
“As Andy Burnham settles into his new role, there may be concerns about future uncertainty but the fundamentals have not changed overnight.
“Interest rates, mortgage availability and consumer confidence still do the heavy lifting on prices and activity, and they will keep doing it whoever is in charge. My advice to agents and homeowners is the same as always: do not sit on your hands waiting for the political dust to settle, because it never fully does, so focus on what you can actually control.”
HIGHER MORTGAGE RATES STRETCH AFFORDABILITY
Colleen Babcock, Property Expert at Rightmove, says: “There’s stability for now as the Bank of England holds its Base Rate as widely expected.
“We’ve seen average mortgage rates increase over the last few weeks as geopolitical tensions have escalated, and the average 2-year fixed rate is currently coming in at 5.11%. For broader context, this is up from 4.25% before the war in Iran started, but down from around 5.43% at the peak of tensions in April.
“For home-movers, rates remain elevated which continues to stretch affordability. However, while rates are high, they’re also relatively steady, which helps movers to plan and make decisions.
“Even relatively small changes in mortgage rates can have a noticeable impact on monthly repayments, particularly for first-time buyers, so any downwards movement in rates during the second half of this year would be very welcome.”
BORROWERS URGED TO ACT SOONER
John Phillips, CEO of Spicerhaart and Just Mortgages, says: “The decision to leave the base rate unchanged was largely priced in, as better-than-expected inflation data helped negate the need for the central bank to pull the trigger on any rate increase.
“For once, I think we’re all grateful for the Bank’s patient, cautious approach as it monitors the impact of the Middle East conflict – which by all accounts, the UK has managed to weather pretty well so far. Even as oil prices have risen once again following the collapse of peace talks.
“How long they will be able to hold off any increase still remains uncertain, with some predictions of one or more by the end of the year.
“The message to clients to act sooner rather than later, I think is a shrewd one, while also being aware of the reality that lenders do need to lend as they have one eye on their end of year lending targets. Ultimately, successful mortgage decisions have never been about perfectly timing the market.
“They’re about balancing affordability, future plans and product suitability against the information available today. That remains the strongest advice brokers can offer, regardless of what happens to the base rate or in the wider economy.”
CERTAINTY COULD UNLOCK 260,000 HOMES
Nick Leeming, Chairman of Jackson-Stops, says: “Today’s decision to hold the Bank Rate avoids adding further immediate pressure on households and gives the housing market continued policy stability.
“For many households, the decision to move is driven by changing family circumstances, employment or lifestyle rather than an attempt to try to time the market. What those buyers increasingly value is confidence that, once they commit, the process will be straightforward, transparent and able to progress without unnecessary delays.
“While holding rates alone will not accelerate market activity, it provides a stable backdrop against which buyers and sellers can make informed decisions. As attention increasingly turns to improving the home-moving process, making transactions faster and more predictable could strengthen confidence and help more households turn their moving intentions into completed sales. Our own research points to an additional 260,000 homes that could be added to the market within a year if more certainty was given the timeline of moving home.”
COMMITTED BUYERS CONTINUE TO MOVE
Nicky Stevenson, Managing Director of Fine & Country, says: “Today’s decision to leave the Bank Rate unchanged at 3.75% offers further reassurance for buyers and sellers looking for stability after a period of heightened uncertainty. The Bank has understandably chosen to remain cautious as it continues to monitor ongoing inflationary pressures, providing a greater sense of certainty for those planning their next move.
“The encouraging news is that the underlying fundamentals of the housing market remain intact. Mortgage approvals are edging upwards, transactions continue to run ahead of last year, and there is clear evidence that committed buyers are still progressing with their plans.
“Today’s market is also one of opportunity. With more homes available than we’ve seen for some time, buyers have greater choice and stronger negotiating power, but sellers who price their properties realistically from day one are continuing to secure successful sales. In contrast, homes that chase yesterday’s prices are finding themselves lingering on the market.
“External events will always influence sentiment, whether that’s geopolitical tensions or fluctuations in mortgage pricing, but the housing market is underpinned by people moving for genuine life reasons. Those non-discretionary movers continue to drive activity, ensuring the market remains active even in more challenging economic conditions.”
LENDERS COULD CUT IF FUNDING COSTS FALL
Hina Bhudia, Partner at Knight Frank Finance, says: “The MPC has turned a little more hawkish since the previous meeting, with three members voting to raise the base rate, which is unsurprising given the escalation of hostilities in the Middle East.
“Mortgage lenders have already repriced higher to account for this, so borrowers should enjoy some stability in the short term.
“That said, the outlook for mortgage rates over the coming months remains highly uncertain.
“Much will depend on developments in the Middle East and whether higher energy prices feed through into broader inflation at a time when demand across the economy remains relatively subdued.
“Many lenders are behind their targets for the year and will pass on to borrowers any reduction in funding costs as soon as they can.”
BROKERS MUST CONTACT MATURING CLIENTS
Emma Hollingworth, Chief Distribution Officer at LSL Financial Services, says: “The escalation in the Middle East has stoked fears of an imminent rate rise, yet it’s too early to know if that will show up in the inflation data. Today’s decision by the Monetary Policy Committee to hold rates reflects that.
“But while the MPC has decided to keep its powder dry today, the outlook for rates remains unclear.
“The flare-up in the Middle East has already pushed up the oil price and swap rates. If the conflict drags on and inflation starts to rise, the MPC may have no choice but to increase borrowing costs.
“For borrowers, this is a deeply uncertain time and they will need the help and support that a good broker provides.
“Therefore, it’s important that brokers reach out to everyone on their client bank whose deal is coming to an end this year to work through their options and secure the best possible rate.”
TRANSACTION EFFICIENCY TAKES CENTRE STAGE
Richard Sexton, Commercial Director at Houzecheck, says: “The housing market remains a game of patience, and today’s decision keeps the chess pieces firmly in place.
“The Bank of England’s decision to hold the Base Rate reflects the balancing act facing policymakers, with inflation pressures easing but affordability challenges still shaping household decisions.
“As confidence gradually returns, the focus must shift from interest rates to transaction efficiency. Buyers may be ready to make their move, but the process needs to keep pace. Fast, reliable surveys and valuations will be essential to turning confidence into completed transactions.”
TRACKER INTEREST GROWS AMID RATE UNCERTAINTY
Frances Haque, chief economist at Santander UK, says: “Today’s decision to keep rates on hold reflects the Bank of England’s caution, as it looks for further evidence that inflation is on track to return to its 2% target.
“While inflation has fallen faster than expected in recent weeks, uncertainty around energy prices and the wider global outlook means that the Monetary Policy Committee needs to continue to monitor the situation and its impact on the UK economy closely.
“Although both global and domestic challenges remain, there certainly seem to be signs of cautious optimism trickling into the mortgage market. More borrowers are choosing to play the waiting game, with growing interest in tracker mortgages as customers hope to benefit from any future reductions in borrowing costs.
“Generally, this ‘wait and see’ approach is here to stay, with our latest forecasts assuming no further cuts to Bank Rate in 2026. However, as inflation is expected to fall back as we enter next year, we should see two further cuts in 2027.”
HOLD PROVIDES WELCOME PLANNING STABILITY
Buster Tolfree, Managing Director of mortgages, buy-to-let and bridging at United Trust Bank, says: “Holding Bank Rate at its current level is the right decision given the level of uncertainty facing the UK economy.
“While inflation has eased significantly, there remain a number of domestic and international factors which could influence the outlook over the coming months, from ongoing geopolitical tensions to a new Government still setting out its economic agenda.
“For borrowers, stability is valuable in itself. A hold gives households, businesses and lenders greater confidence to plan ahead without introducing further uncertainty while the wider picture becomes clearer.
“The mortgage market has remained competitive and, provided inflation continues to move in the right direction, we would expect lenders to remain focused on supporting customers with competitive products and good service.
“Today’s decision provides a period of welcome stability while policymakers assess how these known and unknown risks develop.”
