The latest base rate announcement has confirmed that it has remained steady at 3.75% following the Monetary Policy Committee (MPC) review. This follows the previous hold on 18th June and is the fifth consecutive time that it has been held at 3.75% after it was reduced from 4% in December 2025.
What affected the decision behind the base rate announcement?
This decision was expected as the Bank of England (BoE) is carefully balancing lingering inflation risks against a fragile economic recovery. Inflation fell to 2.6% in the year to June, which is the lowest level since March 2025. However, it’s still higher than the BoE’s target of 2%, with various factors adding to the above-target inflation concerns.
One of these factors is the surge in energy prices since the price cap on energy bills increased for households in July. An increase of 13% in energy bills has been experienced, considerably increasing inflationary pressure. Another factor is continued oil and gas price volatility due to the conflict in the Middle East.
At the same time, the UK is experiencing slow economic growth. It is also faced with potential changes to national finances now that Andy Burnham has become the new prime minister and John Healey has been appointed as the new chancellor.
As such, the MPC has voted to hold the rate, maintaining a cautious approach amid ongoing economic uncertainty and persistent domestic price pressures. This decision aims to balance the need to support economic growth with the necessity of controlling inflation.
How does the base rate announcement affect mortgage rates?
The decision to hold the base rate at 3.75% has created a split impact on mortgage rates. Tracker and other variable rates are usually linked to the base rate and, as such, will remain the same. This means that you’ll continue to pay the same monthly amount for your mortgage. Existing fixed-rate deals will also be unaffected because the rate you pay is locked in until your fixed term ends.
However, the rates for new fixed-rate deals are determined by swap rates. Inflation is expected to rise again and, with it, the likelihood of future interest rate increases. As financial markets are expecting these eventual rate increases, these will be priced into swap rates. Lenders use swap rates to price their fixed-rate mortgage products. As swap rates have already begun rising, some major lenders have started to increase selected fixed-rate deals as a result.
If interest rates do increase in the future, rates on tracker and other variable rate mortgages will also increase. Therefore, be prepared for this if you’re already paying this type of rate.
What action can you take?
If you have a fixed-rate deal that expires within the next 6 months, don’t wait in the hope that interest rates will come down. Instead, lock in a new deal now. Most lenders allow you to do this without fully committing to that deal. That way, if a better deal becomes available before your current one ends, you can change to that one instead.
If you don’t find a better deal, you still have peace of mind that you’ve already locked a new deal in. This prevents you from being switched to the lender’s standard variable rate, which is usually more expensive. It also means that you won’t have to pay more if deal prices start to go up.
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We’re here to review your options to ensure that you have the best mortgage deal to meet your needs. With access to the whole of the market, we can compare a comprehensive range of deals and provide you with impartial advice to help you make the right decision. Give us a call on 01322 907 000 to speak with one of our expert mortgage brokers today.