Bank of England keeps interest rates at 3.75%

The Bank of England has decided to maintain the base interest rate at 3.75%, reflecting ongoing uncertainty linked to the conflict in the Middle East. The Monetary Policy Committee (MPC) voted 8–1 in favour of holding rates steady, with one member advocating for a 0.25 percentage point increase to 4%.

Monetary Policy Committee’s cautious stance

The MPC acknowledged the potential for second-round inflationary effects but judged that subdued economic activity would limit their impact. They noted that any rise in global energy prices could intensify these effects, but current conditions differ from the 2022 energy shock. Inflation started from a lower base this time, with weaker demand, a looser labour market, and already restrictive monetary policy in place.

Wage growth has been easing towards levels consistent with the inflation target, and private sector wage settlements for 2026 were largely agreed before the recent geopolitical tensions escalated.

However, the Bank of England cautioned that a prolonged conflict could necessitate a “forceful tightening in monetary policy” to counteract inflationary pressures.

Industry perspectives on the rate decision

Jeremy Leaf, a north London estate agent and former RICS residential chairman, commented: “Although it is likely interest rates will go up again before they start coming back down, the hold today is a nod to the inflationary pressures which are building due to the impact of war in the Middle East. Certainly, the Bank did not want to do anything which would compromise what little growth we have seen in the economy recently, which would clearly prove to be self-defeating.”

He added that the impact on the property market is expected to be minimal, with some recent signs of mortgage costs easing, which could help improve confidence that remains relatively low.

Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, highlighted the importance of the MPC’s tone and forward guidance. She said: “While a hold from the Bank of England was expected, as ever it’s the tone and forward guidance in the minutes that is just as important.”

Reynolds noted that demand for well-priced, high-quality homes remains strong, with buyers showing greater price sensitivity and realism in their offers. “Buyers are not stretching themselves to make offers they don’t believe will be accepted – particularly in this rate environment – they are simply choosing alternative properties,” she explained.

Nathan Emerson, CEO at Propertymark, welcomed the decision to hold rates steady amid global tensions. “Considering current tensions worldwide, it is reassuring to see base rates held steady. For those on the property ladder or thinking of approaching the buying and selling process, today’s news brings a sense of relief across the coming months.”

He also cautioned that many households are still recovering from cost-of-living pressures, and hopes that easing global tensions will improve household affordability over time.

Emily Williams, director of research at Savills, observed that the strong consensus to hold rates was a relief despite mounting inflationary pressures. She pointed to recent transaction data indicating resilience in the housing market, although much of this activity likely occurred before the Middle East conflict escalated.

Williams highlighted that while some lenders have cut rates to stay competitive, buyers are expected to delay decisions until there is greater clarity. “The path to lower interest rates now looks increasingly uncertain, pointing to a housing market that will remain highly price sensitive,” she said.

She added that the full impact on market activity will become clearer in the coming months as mortgage offers agreed before the conflict expire and buyers reassess affordability.

What this means for landlords

For landlords, the Bank of England’s decision to hold interest rates at 3.75% signals a cautious approach amid geopolitical uncertainty and inflationary pressures. While mortgage costs have shown some signs of easing, the prospect of future rate rises remains, potentially affecting borrowing costs and investment decisions.

The current environment suggests a market where pricing and realistic valuations are crucial, as buyers remain price sensitive and cautious. Landlords should be mindful of these dynamics when considering rent levels and property investments, as affordability challenges for tenants may persist in the near term.

Overall, the Bank’s stance reflects a balancing act between containing inflation and supporting fragile economic growth, with the potential for more aggressive policy action if global energy prices rise significantly or the conflict endures.

Source: Based on reporting from Property118

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