THE Bank of England (BoE) has held its base rate as inflation fears grow over the Iran war with experts warning that “once again the bank is stuck in survival mode”.
Every member of the Monetary Policy Committee (MPC) voted to hold its base rate at 3.75%.
It had been expected to cut rates steadily this year with inflation down to 3% and BoE Governor Andrew Bailey just one month ago promised that it would be down to 2% by May.
But that prediction has been blown out of the water by Israel and the US attacking Iran three weeks ago.
The conflict in the Middle East shows no sign of easing, with US President Donald Trump refusing to back down and Iran attacking energy facilities in Qatar.
Rocketing global oil and gas prices have fed into fears of an impending uptick in inflation – hence swap rates and mortgage rates have risen.
Brokers fear that mortgage rates will continue to rise in the coming weeks while financial advisers pointed out that savers will benefit, though inflation will eat away at any gains.
No surprise
Bob Singh, Founder at Uxbridge-based Chess Mortgages, said the government needs to act to help the housing market.
He added: “In a widely expected move the Bank of England has followed in the steps of the Federal Reserve who also held their rates. Clearly the central banks fear the spectre of inflation amid rising crude prices and what is becoming a protracted conflict in the Middle East.
“Spiking swap rates have spooked the markets, making borrowing more expensive and applying the brakes to an already weak property market. The government has to act soon by abolishing stamp duty to breathe life back into the property market before we enter a recession.”
Katy Eatenton, Mortgage & Protection Specialist at St Albans-based Lifetime Wealth Management, said she is confident that rates will continue going down after the Iran war ends.
She added: “As expected the Bank of England has held its base rate. This was not on the cards for 2026, and we were expecting two or three reductions throughout the year, but it would be irresponsible to do so while there is such uncertainty and volatility around the world. I am confident once the war ends that the lower rates we started to see will make a return.”
Charles Hart, Business Principal at Milton Keynes-based LionHart Mortgages & Protection, said he doesn’t expect mortgage rates to go down until the war is brought under control.
He added: “Sometimes sitting squarely on the fencepost is the least painful option, and given the financial impact Mr Trump’s tantrums are having this is, I reluctantly admit, the most appropriate decision. With lenders increasing rates as fast as world leaders RSVP ‘no thanks buddy’ to the US war machine, what we need right now is more calm seas than shock and awe.
“Further mortgage rate reductions seemed inevitable until a couple of weeks ago, now the only thing I am more sure of is that we won’t see those rates dropping again until the Strait of Hormuz is reopened and the oil is flowing.”
Today’s hold at 3.75% is unsurprising
Sarah Fox-Clinch, Director at Fox Davidson, said she isn’t surprised that the base rate has been held.
She added: “It’s not a surprise that the base rate has been held. A few weeks back we were hoping for a cut, however recent issues in the Middle East and rising pressure on oil prices have caused uncertainty.
“The Bank of England aims to keep things calm, and therefore holding base rate seems to be their only option.”
Patricia Ogunfeibo, Founder & non-practicing Solicitor at London-based tenant2owner, said first-time buyers could actually benefit from higher mortgage rates.
She added: “Today’s hold at 3.75% is unsurprising. The conflict in Iran has pushed oil prices up around 20% and UK gas prices up as much as 75%, threatening to add a full percentage point to inflation by year end. With that backdrop, the Bank had no room to cut.
“Many aspiring first-time homeowners will be worried that the window of falling mortgage rates has closed, at least temporarily. But my message to them remains unchanged however: there is a massive window of opportunity for the savvy first-time (or any) buyer. The lack of competition, buyers’ market we are now in and glut of sales stock is very good news for some whether the base rate remains the same, or not.”
Mike Staton, Director at Mansfield-based Staton Mortgages, said the UK economy is weak.
He added: “The BoE holding the base rate today is no surprise at all. The UK economy is too weak for another rise, but inflation is too stubborn for a cut, so once again the Bank is stuck in survival mode. The war in Iran has clearly influenced this decision. Rising oil, fuel and energy prices push inflation higher, and when inflation moves, mortgage rates follow.
“Global conflict abroad very quickly becomes higher repayments at home. For borrowers, this means don’t expect rates to drop any time soon. Lenders have already been increasing fixed rates, and today won’t suddenly reverse that.
“Savers might enjoy higher returns, but that usually means the economy is hurting somewhere else. Right now the UK is running on low growth, rising unemployment, high debt and constant global shocks. We’re not steering the economy forward, we’re just trying not to stall it. I don’t expect big rate rises, but fast cuts aren’t coming either.”
Once again the bank is stuck in survival mode
Steven Greenall, Mortgage and Protection Advisor at Dunmow-based Protect & Lend, said it is a nightmare for the UK.
He added: “Totally expected, the MPC is between a rock and a hard place presently. They have no choice but to hold rates where they are until they see if the surge in energy prices feeds through to longer term inflation. This could be the UK’s worst nightmare, a stagnating economy with rising inflation.”
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, did point out that savers will benefit.
He added: “The Bank of England’s decision to hold the base rate at 3.75% marks a defensive pivot driven by the Middle East conflict. While the markets had priced in an 86% chance of a rate cut today back in February, the Iran war has sparked such a surge in Brent crude and energy prices, reigniting inflation fears that simply forced the MPC into a ‘wait-and-see’ stance.
“The Bank is now balancing a stagnant UK economy against the risk of a second inflationary wave. For UK borrowers looking for a fixed-rate mortgage, costs are climbing as lenders price in geopolitical volatility. Savers benefit from high yields for longer, though rising inflation will erode the real rate of return.
“Looking ahead, the path to lower rates is stalled until further notice. If energy prices remain high, the Bank will likely stay on hold through the summer, with any cuts delayed until late 2026. This ‘higher for longer’ reality signals that the era of cheap credit is not returning anytime soon.”
David Stirling, Independent Financial Adviser at Belfast-based Mint Wealth, said inflation is expected to tick up again.
He added: “In what will go down as the least surprising announcement since the sun rose this morning, the MPC looked at a war in the Middle East, oil prices heading for the moon, and inflation threatening to gate-crash the party again then decided that, on balance, they’d just leave things exactly as they are.
“Bold stuff from Threadneedle Street. Cuts are still coming. Probably. Eventually. In the meantime, the Bank of England will continue doing what it does best: waiting, watching, and making absolutely certain that whatever happens next is someone else’s fault.”
Trump’s ego-war in the Middle East is collapsing the UK housing market
Ben Perks, Managing Director at Stourbridge-based Orchard Financial Advisers, said a hold was expected.
He added: “A hold was inevitable. The moment Trump’s first bomb hit Iran, it blew up all hope of a rate reduction today. There was so much optimism prior to that, even from Mr Bailey, and now rate reductions have been brought to a grinding halt.
“Trump’s rhetoric is that this war will all be over quickly, I hope he is right for the sake of the UK economy and its mortgage borrowers, who have not caught a break for about five years now.”
Samuel Mather-Holgate, Managing Director & IFA at Swindon-based Mather and Murray Financial, said Trump is to blame for inflation rising.
He added: “Trump’s ego-war in the Middle East is collapsing the UK housing market as the central bank changes course and holds rates. This will impact house prices as mortgage lenders start pushing rates higher, after thinking the Bank of England were on course to slash rates before the missiles started flying in the Gulf.
“I protracted conflict will cause higher inflation and possible rate rises, and that means a house price crash is on the cards this summer.”
Michelle Lawson, Director at Fareham-based Lawson Financial, added: “Today’s hold is no shock but there are more concerns for borrowers, householders and businesses with the rate rises due to the geopolitical tensions in the Middle East. The knock-on effect to mortgage pricing is like Covid 2.0 so we can only hope this settles soon and isn’t too long-lived.”
Photo by Milada Vigerova on Unsplash.
