The Bank of England (BoE) has voted to keep interest rates on hold at 3.75 per cent following the peace deal in Iran and lower-than-expected inflation data for the UK.
Four cuts in 2025 had the base rate heading toward an expected level close to 3 per cent this year, but the Iran war and subsequent oil price rises derailed that ambition, with the Monetary Policy Committee now voting to hold four times in a row.
There had been fears that the rate may need to rise once more to temper the effects of inflation. But that has been quelled for now on the back of the peace deal framework between the US and Iran, as well as domestic data showing the economy remains more resilient than anticipated.
That has led to some suggestions mortgage rates could come down quickly in the near future, even with the BoE’s interest rate remaining unchanged for now.
Barclays are making cuts to a range of two- and five-year residential fixes from Friday, while Santander are among those to have already lowered some deals too.
The BoE has a government-set mandate to try and control inflation at a 2 per cent level, with interest rates one of the primary tools it uses to do that.
In late April, the bank warned that inflation could surge significantly higher this year in a worst-case scenario, but some economists are already forecasting that the UK may have avoided that outcome.
Even so, the strong likelihood is still that food prices will rise across the year and the energy price cap is heading up for the three months from July.
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That doesn’t necessarily mean the MPC will vote to hike interest rates in future – their next meeting is 30 July – as a wider range of factors are also at play in the decision, including economic growth, employment and wage growth and services inflation.
One expert is already predicting the next move will actually be a cut, but governor Andrew Bailey has said the Bank will watch economic indicators before deciding a renewed approach, with no pre-set path determined for interest rates.
This story is being updated