Bank of England Holds Base Rate at 3.75% – But Mortgage Rates Continue to Move
The Bank of England has today decided to keep the Base Rate at 3.75%, as policymakers continue to balance the challenge of rising inflation against signs of a slowing UK economy.
While this decision was largely expected, it highlights an important point that often causes confusion for mortgage borrowers:
Mortgage rates are influenced by, but move independently of, the Bank of England Base Rate.
Why Has the Base Rate Been Held?
Inflation remains above the Bank of England’s 2% target and many economists expect it to rise further during the second half of 2026, partly due to higher global energy prices following ongoing tensions in the Middle East.
In these circumstances, there would normally be pressure to increase interest rates. However, the Bank is also seeing signs that the UK economy is losing momentum.
Recent data has shown:
- Slower economic growth
- Falling job vacancies
- Rising unemployment
- Weaker business confidence
Increasing interest rates in this environment could place additional pressure on households and businesses at a time when economic activity is already subdued.
As a result, the Bank has chosen to leave rates unchanged while it continues to monitor inflation, employment and wider economic conditions.
Bank of England base rate vs UK inflation since 2020
A recent view of how the Bank of England base rate and inflation have moved since 2020, alongside the 2% inflation target.
Source: Bank of England and ONS. Chart for illustrative purposes.
Why Mortgage Rates Continue to Change
Although the Base Rate remains unchanged, mortgage rates continue to move.
Lenders price mortgages based on a range of factors, including:
- Financial market expectations
- Swap rates
- Funding costs
- Competition between lenders
- Economic forecasts
This is one of the reasons why mortgage pricing can sometimes move surprisingly quickly.
In recent months, expectations around inflation and future interest rates have shifted several times. This has led some lenders to withdraw products, reprice rates and launch new deals, regardless of the fact that the Base Rate itself has not changed.
What Could Happen Next?
The Bank of England faces a difficult balancing act.
If inflation continues to rise and becomes more persistent, there may be pressure for interest rates to increase later this year.
However, if economic growth remains weak and unemployment continues to rise, policymakers may decide that keeping rates steady is the better option.
For now, financial markets will continue to watch inflation data, employment figures and developments in global energy markets closely.
What Does This Mean for Borrowers?
For homeowners approaching the end of a fixed-rate deal, those looking to buy a property, or anyone considering a remortgage, the key takeaway is:
The mortgage market is influenced by a number of factors and it reacts to expectations about future interest rates before the Bank of England actually makes a decision.
Always plan and review your options with an independent whole-of-market mortgage adviser as early as possible.
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