The Bank of England (BoE) has chosen to hold interest rates at 3.75% as uncertainty continues surrounding the economic impact of the conflict in the Middle East.

The central bank’s latest decision, widely expected by economists, will keep the base rate at its lowest level since February 2023.

At its meeting this week, the nine members on the BoE’s Monetary Policy Committee (MPC) voted by a majority of eight to one to maintain rates at 3.75%. One member voted for an increase to rates by 0.25%, which would have taken the base rate up to 4%.

In its report published today, the MPC said that the conflict in the Middle East means that prospects for global energy prices are “highly uncertain”.

“Monetary policy cannot influence energy prices but will be set to ensure that the economic adjustment to them occurs in a way that achieves the 2% inflation target sustainably,” the MPC’s report said. “The policy stance required to achieve this will depend on the scale and duration of the shock, and how it propagates through the economy.”

The Office for National Statistics (ONS) announced earlier this month that the UK’s rate of inflation climbed to 3.3% for the year to March, and the BoE today warned inflation is “likely to be higher later this year”, as the effects of higher energy prices pass through.

In the mortgage market, group lending distribution director at OSB Group, Adrian Moloney, commented that while a hold brings a degree of short-term stability, it doesn’t remove the uncertainty facing borrowers and brokers.

“Expectations around the future path of rates continue to shift, and it is this volatility, rather than the level of rates alone, that is shaping behaviour across the market,” Moloney said.

“For borrowers, this is unlikely to translate into a material change in mortgage pricing in the near term, as much of that is already driven by forward-looking expectations and the crisis in the Middle East. At the same time, affordability pressures remain firmly in place, particularly for those coming off fixed rate deals.”

Managing director at The Right Mortgage & Protection Network, Ben Allen, highlighted that swap rates continue to drive many pricing decisions, and that these have been “far from stable”.

“We have seen sharp movements which have made it hard for lenders to price products with confidence, although there has been some calm more recently, allowing some rates to edge down and products to return,” Allen commented.

“That said, this stability may not last. The priority for advisers and borrowers is to secure suitable deals when they appear, particularly for those coming up to refinance, while keeping the option to move if pricing improves.”

Chief commercial officer at Fleet Mortgages, Steve Cox, added: “Today’s decision to hold bank base rate at 3.75% underlines just how difficult the current environment is for the MPC. In most cycles, it’s possible to get a fairly clear sense of the likely direction of travel ahead of the announcement, but this time it has been far less predictable.

“That reflects the complexity of the situation, particularly given the geopolitical risks we’ve seen emerge since March and the challenge of trying to future-proof policy against those uncertainties. With the announcement last week that inflation has risen to 3.3%, and expectations that it could move higher in the months ahead, it’s understandable the bank has continued to wait and assess.”

The BoE will announce its next vote on the base rate on 18 June.

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