The Bank of England has decided to maintain its base interest rate at 3.75%, citing the ongoing conflict in the Middle East as a significant factor influencing economic uncertainty. This move aligns with the US Federal Reserve’s recent decision to keep rates steady, reflecting concerns over rising inflation driven by increased energy costs.

Interest rates held amid geopolitical tensions

The Bank of England’s Monetary Policy Committee (MPC) unanimously voted to hold the base rate at 3.75%. The committee highlighted the war in Iran as a key contributor to market volatility and inflationary pressures. This decision contrasts with earlier market expectations that anticipated a potential rate cut in 2026, which now appears less likely due to the surge in oil prices caused by the conflict.

Inflation outlook affected by energy prices

The MPC report emphasises that the conflict has led to a significant rise in global energy and commodity prices, which will directly increase household fuel and utility bills. This new economic shock comes at a time when the UK economy was already experiencing below-potential growth and some spare capacity. The report notes that consumer price index (CPI) inflation is expected to be higher in the near term as a result.

Higher energy costs are anticipated to reduce real incomes, potentially dampening household and business confidence. This could lead to increased precautionary savings and weaker demand, further complicating the economic outlook.

Industry responses to the Bank of England’s decision

Joshua Elash, director of specialist lender MT Finance, described the rate hold as the only sensible outcome given the current geopolitical backdrop. He suggested that the measure should be temporary, with the MPC likely to resume gradual rate reductions once the conflict eases and energy prices stabilise.

Kevin Shaw, National Sales Managing Director at LRG, noted that the Bank’s caution reflects the renewed instability in the Middle East and its inflationary impact. Despite this, Shaw observed that the housing market remains resilient, with no significant slowdown in sales or new listings and a 9% increase in buyer applications compared to 2025.

Market stability welcomed by property professionals

Nathan Emerson, CEO of Propertymark, welcomed the decision to keep rates steady, highlighting the importance of predictable mortgage repayments for households managing cost-of-living pressures. He noted that stable interest rates support buyer confidence and property transactions, especially in a market challenged by supply constraints and rising house prices.

Emerson also pointed out that this environment allows sellers and landlords to plan more effectively, while buyers can explore financing options without immediate concerns over rising borrowing costs.

Geopolitical events reshape housing market expectations

Lucian Cook, head of residential research at Savills, explained that the Bank of England’s decision underscores how quickly geopolitical developments can alter housing market forecasts. He remarked that hopes for easing inflation and future rate cuts have been dampened by renewed pressure on oil prices, with markets now anticipating the base rate to remain at current levels or even rise by the end of 2026.

Cook predicted that the property market will remain price-sensitive, with real-term values likely to continue declining this year. He added that lenders are expected to adopt a more cautious approach, which will particularly affect first-time buyers reliant on higher loan-to-value mortgages.

Financial markets and mortgage rates more volatile

Matt Smith, mortgage expert at Rightmove, commented that while the Bank Rate remains unchanged, recent geopolitical uncertainty has increased financial market volatility. This has led to slight rises in some mortgage rates, as lenders adjust pricing based on fluctuating swap rates.

Smith noted that these changes can impact monthly budgets for new mortgage applicants and those remortgaging, with the average monthly mortgage payment on new purchases having increased by around £45 so far this year. However, he emphasised that rates remain significantly lower than last year’s peaks and that competition among lenders continues.

More hawkish stance than expected

Simon Gammon, managing partner at Knight Frank Finance, described the unanimous MPC vote to hold rates as more hawkish than economists had predicted, with inflation expectations now revised upwards. The MPC forecasts CPI inflation to remain between 3% and 3.5% in the coming quarters rather than falling towards target.

Gammon advised borrowers to secure mortgage rates promptly, as prolonged geopolitical tensions are likely to keep upward pressure on pricing. He highlighted the recent disappearance of sub-4% fixed-rate deals and the rapid repricing of products, creating a challenging environment for borrowers.

What this means for landlords

For landlords, the Bank of England’s decision to maintain interest rates provides a degree of stability in mortgage costs, which is crucial for financial planning amid rising operational expenses. However, the prospect of sustained inflation and cautious lending practices may affect borrowing costs and access to finance, particularly for those seeking to expand portfolios or refinance existing mortgages.

Landlords should remain vigilant to market developments and consider securing favourable mortgage deals promptly, as lenders may adjust rates quickly in response to ongoing geopolitical and economic uncertainties.

Source: Based on reporting from Property118

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