What's happening to UK interest rates and what does it mean for mortgages?
Summary
The Bank of England has kept the UK interest rate at 3.75% since February 2026, after lowering it from 5.25% in 2023. Rising energy prices caused by the US-Israel-Iran conflict have increased inflation and made further rate cuts unlikely in the near future, affecting mortgage repayments and household costs.Key Facts
- The Bank of England's base interest rate was 5.25% in 2023 and was gradually cut to 3.75% by mid-2026.
- Inflation in the UK has dropped from a high of 11.1% in October 2022 to 2.6% in June 2026.
- Global conflicts involving the US, Israel, and Iran have caused energy prices to rise, pushing up inflation worldwide.
- Higher energy and fuel costs increase the cost of living and may keep inflation above the Bank’s 2% target.
- About one-third of UK households have a mortgage, and around 500,000 mortgages are directly affected by changes in the Bank of England rate.
- Mortgage rates that track the Bank’s rate can become cheaper when rates fall, but this is unlikely soon due to inflation pressures.
- UK household energy bills are expected to rise after an increase in the energy price cap on July 1, 2026.
- The Bank of England Governor has said recent price drops are encouraging but warns inflation risks remain if energy prices stay high.
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