All you need to know about the central bank's latest call on interest rates
As expected, the Bank of England left interest rates unchanged on Thursday afternoon, extending a run of rate holds that stretches back to the beginning of this year.
The central bank’s cautious approach to rate policy is continuing amid an escalating US-Iran conflict that’s stoking fears of higher inflation even as the outlook for the British economy remains cloudy at best.
Today’s decision comes as no surprise to financial markets, with the Bank following other leading global central banks (including the Federal Reserve and Bank of Canada) in holding rates steady. Of more interest to financial markets will be the Bank’s path ahead for the remainder of the year: further rate announcements are due on September 17, November 5, and December 17.
What the hold means for mortgage rates
For the roughly three-quarters of UK borrowers on fixed-rate deals, according to the Financial Conduct Authority, Thursday’s decision brings no immediate change to existing repayments. Tracker mortgage holders are similarly unaffected, since Bank Rate has not moved.
The more significant driver of mortgage pricing in the weeks ahead is likely to be swap rates, which move on expectations rather than the decision itself. The Moneyfacts Average New Mortgage Rate had already climbed from 4.90% in early March to 5.52% by mid-July, with Santander, HSBC, Lloyds Bank and Nationwide among the lenders that raised fixed and tracker pricing in the run-up to the announcement.
The average standard variable rate stands at 7.13%, highlighting the premium paid by borrowers who have not locked into a fixed deal.
Key takeaways from the BoE’s statement
The Bank’s Monetary Policy voted 6-3 to hold Bank Rate at 3.75%, a wider dissent than pre-meeting forecasts assumed. Three members – Megan Greene, Catherine L Mann and Huw Pill – voted for a 25-basis-point increase to 4%, with six other members deciding to hold the line: Andrew Bailey, Sarah Breeden, Swati Dhingra, Clare Lombardelli, Dave Ramsden and Alan Taylor.
CPI inflation fell to 2.6% since the last meeting, but the Committee expects it to rise further this year as energy effects continue to pass through. The MPC explicitly judges the risks to the inflation outlook as tilted to the upside relative to the central projection in the July Monetary Policy Report.
Unsurprisingly, energy remains the dominant uncertainty. Oil prices have spiked as the Iran war continues, although the Committee noted on Thursday that the range of likely near-term price paths had “probably narrowed” versus the more extreme scenarios considered at the April report.
All members agreed that there’s been “little evidence” of material second-round effects so far, but stressed this can’t be taken as a strong signal given lagged pass-through. The most telling takeaway on that front, though, is that three members now say the risk warrants pre-emptive rate action rather than a wait-and-see approach.
For now, the BoE’s forward guidance – its signals on what’s probably next for interest rates – remains unchanged. The Committee “stands ready to act as necessary” to keep inflation on track for the 2% target, with no pre-commitment either way ahead of the September meeting.
State of the housing and mortgage markets
The UK housing market remains under strain from higher borrowing costs that have persisted well above pre-2022 levels for a prolonged spell. Analysis from the Resolution Foundation has emphasised the impact of successive rate rises on household finances, and affordability remains a huge constraint facing first-time buyers.
The stormy economic outlook is weighing against the summer housing market. Zoopla’s latest House Price Index, released this week, showed that house price growth has fallen to 1.3% (compared with 1.7% a year ago), while sales agreed are running 9% below the same time in 2025.
Higher rates have added about £125 per month, or £1,500 per year, to repayments on a typical UK home, Zoopla said, a key driver of the slower-than-usual summer selling environment.
But the outlook also varies significantly by region. The North East, for instance, has seen sales jump by about 4% compared with the same time last year, even though over three-quarters of local markets across the country have registered a sales decline.
Thursday’s rate hold, then, isn’t likely to move the needle for the housing market, with no sign of rate relief anytime soon for buyers.
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter. You can also follow us on Facebook, X (formerly Twitter), and LinkedIn.
