Bank of England Holds Interest Rate at 3.75% Despite Inflation Concerns
The Bank of England kept its base rate unchanged on 18 June amid Middle East energy tensions. Mortgage-holders on variable rates avoid an immediate increase, but rate cuts remain uncertain.
The Bank of England's Monetary Policy Committee voted to hold the base interest rate at 3.75% on 18 June 2026, resisting pressure to raise rates despite ongoing concerns about inflation linked to the conflict in the Middle East.
The decision means households on tracker mortgages will see no immediate change to their monthly repayments, offering temporary relief as borrowing costs remain elevated. The UK's current inflation rate stands at 2.8%, above the Bank's 2% target but lower than the 3.3% recorded in March.
What drove the decision?
Inflation was expected to reach 2% in spring 2026 before war broke out in Iran and the Middle East, disrupting oil and gas supply and pushing up energy prices, meaning inflation is now higher than expected and will probably rise further this year. Despite this, all 65 economists polled by Reuters expected the Bank to keep rates unchanged, with markets no longer pricing in rate increases for the remainder of 2026.
At the previous April meeting, the MPC voted 8-1 to hold rates at 3.75%, with one member voting to raise rates to 4%, as April CPI inflation fell to 2.8% but the Bank warned of a renewed rise later this year.
What this means for you
If you're renting or have a variable-rate mortgage, your costs won't jump immediately—but don't expect relief soon either. The Bank has indicated there could still be scope for rate cuts later in 2026 if inflation falls, though much depends on energy prices and the trajectory of the Middle East conflict. Anyone remortgaging in the coming months should compare fixed-rate deals carefully, as lenders price in future uncertainty. If you're paid in a foreign currency and sending money to the UK, the pound has weakened slightly on the decision, potentially giving you marginally better value.
Sources
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