The Bank of England has left UK interest rates at 3.75% for the sixth consecutive meeting. That keeps them at their lowest level since February 2023. Before the US-Israeli war with Iran, rates had been expected to fall in 2026. But the conflict's economic fallout has pushed up inflation globally, making cuts unlikely and increases a possibility. Interest rates influence mortgage, credit card and savings rates for millions of people.
An interest rate shows the cost of borrowing money or the reward for saving it. The Bank of England's base rate is the charge it applies when other banks and building societies borrow money. That rate influences what those institutions charge customers for mortgages and the interest they pay on savings. The Bank adjusts its base rate up and down to keep UK inflation, the rate at which prices rise, at or near 2%. When inflation sits above that target, the Bank typically raises rates. The aim is to encourage people to spend less, which reduces demand for goods and services and limits price rises.
The base rate rose to 5.25% in 2023 and stayed there until August 2024, when the Bank began cutting. Five cuts brought rates down to 4%. The Bank then held rates at its September and November 2025 meetings. It then cut in December 2025 before holding rates steady in January, March, April, June, July and September 2026.
Meanwhile, the main UK inflation measure, CPI, has fallen sharply from the 11.1% peak recorded in October 2022, which followed the war in Ukraine. However, it has been creeping up and is expected to rise further. It was 3.1% in the year to August 2026, up from 2.9% a month earlier. The Office for National Statistics (ONS), which tracks UK inflation, said the uptick came from higher energy costs, pushing petrol and diesel prices up as well. The US-Israel war with Iran has raised energy and fuel costs worldwide, accelerating price increases more broadly.
At the start of 2026, the Bank was expected to cut rates twice, with the first reduction predicted for March or April. But the rise in fuel prices and inflation after the conflict began has upended those expectations. Oil prices initially jumped due to supply disruption in the region, then fell when various ceasefires were agreed. Oil prices climbed again when the US and Iran resumed attacks in the Strait of Hormuz in July. UK household energy bills increased after the latest price cap rise took effect on 1 July, and global oil prices have climbed again recently. Given that uncertainty, many analysts expect rates to rise before the end of the year.
