The Bank of England (BoE) announced on Thursday its decision to hold interest rates at 3.75 per cent, following four cuts across 2025.
Recent votes have been tight affairs, the nine committee members swinging 5-4 or 4-5 to cut or hold each time – but on 19 March there was a unanimous 9-0 vote, reflecting how the Iran war had put soaring energy costs and rising inflation back on the menu for Britain, while July’s vote has since swung in the opposite direction. The latest came in at 6-3 in favour of a hold, but with those three dissenters pushing for a preemptive hike to head off inflation concerns.
There is an expectation that oil prices rising in the first half of the year will now lead to renewed inflation in the second half of 2026.
Here’s a brief rundown of what the current interest rate might mean for you:
What does the interest rate mean for mortgages?
Broadly speaking, as increasing interest rates over the last few years have meant mortgage repayments going up, then the reverse also holds true: lower rates, lower repayments. However, there are several important things to note.
Firstly, that it’s only the interest part on the repayments which should change – your capital repayments will naturally decrease the more you pay off your mortgage. Secondly, the Bank Rate (official term!) isn’t the rate you are necessarily charged by your bank or lender for the mortgage – they’ll base theirs off the BoE rate (through money markets called swap rates), but it won’t be the same.
More than half a million people do, however, have a mortgage that tracks the BoE interest rate, and those would see an immediate change in the event of any rise or cut.
Far more people have fixed-term deals, which expire after perhaps two years, or often up to five, and need renegotiating – almost 2 million homeowners are expected to seek renewed deals in 2026.
If you’ve got a fixed term mortgage plan, you won’t see a change in repayments in any case until that comes to an end and you start a new one, but if you’ve already finished and moved onto a standard variable rate deal, then you might see a change in your repayments.
New mortgage products tend to be based on swap rates – market agreements based on future expectations of interest rate movements – rather than the current bank rate, which is why many lenders raised their mortgage deals to make them more expensive across March. Some have since fallen again, though the resurgence of hostilities in the Middle East has bumped them up once more.
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What about savings accounts?
If you have money in a savings account, it’s the other side of the see-saw: rates going down mean you’ll earn less interest; up means you get more.
As there has been a bit of a fierce battle raging among banks and building societies for customers, it’s entirely possible to get good deals for close to five per cent if you are happy to lock in money for a fixed period of time, while even easy access accounts are offering up to the same level now.
There are always terms and conditions to be met, so ensure any accounts you open suit your circumstances, but the opportunity still remains to save and earn money at a better rate than inflation, which currently sits around 2.6 per cent.
Do be aware of the amount of interest you can earn without being taxed, though. If your savings account interest rate isn’t fixed, banks can always change the rate you get up or down.
A tax-efficient way of saving is to use a cash ISA, where everyone (for now!) has a £20,000 personal allowance each year, which will drop to £12,000 in April next year, with the other £8,000 reserved for tax-free investing.
Bills and repayments
Credit card repayments and other types of personal loans are, of course, also affected by interest rates, as the amount they all charge for borrowing could be altered.
For credit card users (and especially for buy now, pay later deals), it’s always important to pay off the full amount each month if you are able to, to avoid interest being charged at all – depending on your circumstances and the account type, they can be one of the more costly ways to borrow.
Again, it may not be immediate that lenders alter their rates after a base rate change, but get in touch with them to assess your options if you feel your repayments could or should be lower.
When it comes to energy bills, they are likely set to see increases from summer when the new energy price cap comes into effect, as a direct consequence of the war in Iran sending up wholesale prices in gas and oil.
