The Bank of England has kept its base interest rate at 3.75% for a fifth consecutive meeting, leaving borrowing costs unchanged as policymakers assess renewed inflation pressures caused by higher global energy prices.

The rate remains at its lowest level since February 2023, but expectations of further cuts in 2026 have weakened significantly. Earlier in the year, economists had anticipated two reductions, with the first potentially arriving in spring.

Energy and fuel prices have risen internationally, contributing to renewed inflationary pressure and making the Bank more cautious about lowering rates.

Why Interest Rates Matter

The Bank of England base rate influences borrowing and saving costs across the economy. Commercial banks use it as an important reference when setting mortgage, loan, credit card and savings rates.

The Bank adjusts rates primarily to keep inflation close to its 2% target. Higher interest rates generally discourage borrowing and spending, which can help slow price increases. Lower rates can stimulate economic activity but may also increase inflationary pressure.

The base rate reached 5.25% in 2023 and remained there until August 2024. Five reductions subsequently brought it to 4%, followed by another cut in December 2025 to the current 3.75%.

Inflation Is Complicating Cuts

UK inflation has fallen sharply from its October 2022 peak of 11.1%, but recent progress has become less straightforward.

Consumer price inflation stood at 2.9% in the year to July 2026, rising from 2.6% the previous month. The Office for National Statistics attributed part of that increase to higher energy costs.

Household energy bills also increased after a new price cap took effect on 1 July.

Bank of England governor Andrew Bailey said inflation had fallen faster than policymakers previously expected, but continuing volatility in Middle Eastern energy markets could push it higher again. He indicated that the Bank's priority is ensuring any renewed increase remains temporary and inflation ultimately returns to the 2% target.

As a result, many analysts now expect the base rate to remain at 3.75% for some time.

What It Means for Mortgages

Just under one-third of households have a mortgage. Around 500,000 borrowers have tracker mortgages directly linked to the Bank rate, meaning their monthly payments would usually fall if the base rate were reduced.

Another roughly 500,000 borrowers are on standard variable rates, where lenders decide whether to pass on changes.

Most mortgage holders — approximately 87% — have fixed-rate deals. Their current monthly payments are protected from immediate base-rate movements, but refinancing has become significantly more expensive.

By 30 July, the average two-year fixed mortgage rate had reached 5.62%, compared with 4.83% at the beginning of March. Average five-year fixes had increased from 4.95% to 5.66%, while the average two-year tracker stood at 4.51%.

Around 800,000 fixed mortgages carrying rates of 3% or less are expected to expire each year on average until the end of 2027. Many of those borrowers could face substantially higher repayments when they refinance.

Savers Face a Different Picture

Higher interest rates can benefit savers because banks generally offer better returns when the base rate is elevated.

At the end of July, the average easy-access account paid 2.55%, while easy-access cash ISAs averaged 2.73%. One-year fixed savings accounts offered an average of 4.27%.

For people relying on savings interest as part of their income, future rate cuts could reduce those returns.

Rates Abroad Are Shifting Too

The European Central Bank began reducing eurozone rates from 4% in June 2024, eventually reaching 2% in June 2025. It then raised its rate to 2.25% in June 2026 in response to inflationary pressures.

In the United States, the Federal Reserve has cut rates three times since September 2025, bringing its target range to 3.5%–3.75%.

For UK households, the immediate message is clear: borrowing costs are no longer at their recent peak, but cheaper mortgages are unlikely to return quickly while inflation and energy prices remain uncertain.