The Bank of England has decided to maintain its base interest rate at 3.75%, as households continue to grapple with rising prices stemming from the ongoing conflict with Iran. Economists had widely anticipated this decision, given early signs of higher inflation linked to the Middle East crisis.
Inflation and Economic Impact
Before the war erupted in early February, analysts predicted that both interest rates and inflation would decline this year. However, prices have begun to climb again. The initial effects of the Iran war became evident earlier this month when inflation—the rate at which the cost of goods and services rises over time—increased from 3% to 3.3% in March.
Drivers have already faced higher petrol and diesel costs due to surging oil prices. Ahead of the rate decision, oil prices jumped to $126 (£94) per barrel, the highest level since 2022. Additionally, mortgage rates have risen across the board in recent weeks, and energy bills are expected to increase again this summer. UK firms have warned that food inflation could climb as high as 7%.
The Bank of England uses the base rate to control inflation. The theory is that higher interest rates reduce spending as borrowing costs increase, which slows demand and makes it harder for businesses to raise prices, thereby curbing inflation. The Bank targets a 2% inflation rate and meets every six weeks to review the base rate.
Impact on Mortgages
Since the base rate remains unchanged, mortgage repayments should not see an immediate adjustment. For those with tracker mortgages, the rate follows the base rate directly. Standard variable rate (SVR) mortgages typically change with the base rate, though lenders can alter them at any time. Fixed-rate mortgages are unaffected until the fixed term ends.
Impact on Debt
Credit card rates linked to the base rate will not change today, but variable rates can fluctuate regardless. The average credit card purchase APR is around 35.8%, according to Moneyfacts. Personal loans and car financing usually have fixed rates, so existing agreements are unaffected, though new loans may reflect the current rate environment.
Impact on Savings
Variable savings rates can change, while fixed-rate accounts remain stable for their term. MoneySavingExpert.com highlights top rates: the best easy-access cash ISA offers 4.51% from Trading 212 (including a 0.91% new customer bonus), and the best standard easy-access account pays 4.5% from Chase (with a 2.25% bonus). For fixed-term savings, two-year and five-year accounts offer up to 4.7%, while a one-year fix from MBNA pays 4.66%. Regular savings accounts, such as Zopa’s 7.1% variable rate for six months (max £300 monthly deposit), provide higher returns but with restrictions.
