The Bank of England has kept its base rate at 3.75%, a decision widely expected by financial markets as policymakers continue to balance inflation risks against economic growth.
The decision marks the fifth consecutive meeting at which interest rates have been left unchanged, with the Monetary Policy Committee voting six to three to keep the base rate at 3.75%. Inflation stands at 2.6%, below earlier expectations but still above the Bank’s 2% target. However, policymakers expect higher energy prices, driven in part by conflict in the Middle East, to push inflation higher later this year.
The latest decision comes as the UK economy shows signs of resilience. The Bank has raised its growth forecast to 1.1%, while a stable labour market has helped ease some domestic inflationary pressures, even as higher borrowing costs continue to weigh on household spending.
Andrew Bailey has stressed that monetary policy cannot directly control global energy prices. Instead, the Bank’s focus is on ensuring that any increase in inflation proves temporary and does not become embedded through higher wages or broader price rises.
Financial markets will now turn their attention to the Monetary Policy Committee’s next meeting on 17th September 2026 for further guidance on the outlook for interest rates. Although geopolitical developments, including tensions in the Middle East, remain a source of uncertainty, the Bank has indicated that future decisions will continue to depend on incoming economic data and the outlook for inflation.
What the hold means for households and businesses
For homeowners, the unchanged base rate provides a degree of stability after a prolonged period of interest rate increases. Many borrowers on variable-rate mortgages have already seen their monthly repayments rise significantly in recent years, while those coming to the end of fixed-rate deals may still face higher borrowing costs when refinancing. Experts advise homeowners to compare mortgage products carefully before choosing a new deal.
Borrowing costs also remain elevated for personal loans, credit cards, and other forms of consumer credit compared with the low interest rate environment of previous years. Businesses continue to operate in a higher borrowing cost environment, which may influence investment and hiring decisions.
On the savings side, higher interest rates have benefited many cash savers, with easy-access and fixed-term accounts offering more competitive returns than in recent years. However, inflation continues to reduce the real value of savings, meaning returns may still struggle to keep pace with rising prices.
Derence Lee, Chief Finance Officer at Shepherds Friendly, said: “The Bank of England has held the base rate at 3.75%, which continues to influence borrowing costs, mortgage rates, loan repayments, and savings returns. The decision comes against a backdrop of ongoing geopolitical tensions and global economic uncertainty. While future rate cuts could eventually reduce borrowing costs for households and businesses, these uncertainties mean interest rates could remain higher for longer. As a result, mortgage and loan repayments may stay elevated, while cash savings rates could remain relatively attractive.”
“Our recent research found that 48% of people lack confidence in investing, suggesting many may miss out on potential long-term benefits because of limited knowledge. Taking the time to learn about investing can help people feel more confident and better equipped to make informed long-term financial decisions.”
“While cash savings remain important for short-term goals and emergency funds, those with longer-term objectives may also want to consider how their money could work harder over time. Historically, Stocks and Shares ISAs have tended to outperform cash over the long term, although past performance is not a guarantee of future returns. Whether investing is suitable depends on an individual’s financial goals, investment horizon, and attitude to risk.”
Research conducted by Shepherds Friendly in late 2025 found that 48% of people did not feel confident about investing. Confidence was even lower among women, with 60% saying they lacked confidence compared with 35% of men. Similar gaps were also seen in confidence around choosing the right ISA and planning for retirement.
The survey of 2,000 UK adults also found that only 23% passed a broader financial literacy quiz, a decline from previous years. Young adults aged 18–24 recorded the lowest pass rate at 9%.
Lee said improving financial knowledge can help people make more informed decisions that are better suited to their individual circumstances.
ISAs allow individuals to invest up to £20,000 each tax year within a tax-efficient wrapper. Although they have historically delivered stronger long-term returns than cash for many investors, they also carry risk, and the value of investments can fall as well as rise. Anyone considering investing should ensure it aligns with their financial goals, investment horizon, and attitude to risk, and may wish to seek professional financial advice if unsure.
For now, households and businesses are being encouraged to review their finances, including comparing mortgage deals, maintaining emergency savings, and considering longer-term financial planning where appropriate. Financial education also remains a key issue, with 70% of respondents in the Shepherds Friendly survey saying personal finance should be taught in schools. Addressing knowledge gaps could help more people make informed financial decisions in an uncertain economic environment.