18th September 2026
The Bank of England has decided to leave interest rates unchanged at 3.75%, giving households and businesses some stability but also signalling that the next stage of the battle against inflation may be more difficult than previously expected.
The decision comes just a day after figures showed UK inflation rising from 2.9% to 3.1% in August, moving further away from the Bank's 2% target. Transport costs, particularly petrol and diesel, were the biggest contributor to the increase.
The Bank has already reduced interest rates substantially from the 5.25% peak reached in 2023, with Bank Rate eventually reaching 3.75%.
But borrowers hoping that rates would simply continue falling may now have to be more patient.
Why did the Bank hold rates?
The Bank is facing two conflicting pressures.
On one side, the economy needs reasonably affordable borrowing. High interest rates increase mortgage payments, make business investment more expensive and discourage people from spending.
On the other, inflation is still too high.
The latest increase is particularly awkward because some of the pressure is coming from energy and fuel prices. The Bank cannot directly control the international price of oil or gas. What it can do is try to prevent an energy-price shock from spreading into wages, services and other prices.
The Bank has previously warned that the conflict in the Middle East and disruption to energy supplies could push inflation higher during the second half of 2026.
That makes cutting rates more difficult.
What does it mean for mortgage borrowers?
For people with tracker mortgages, today's decision is straightforward.
Their mortgage rate normally moves directly with Bank Rate, so there should be no change in their payment as a result of today's announcement.
For borrowers on standard variable rates, there is also no immediate Bank Rate-driven reduction.
The situation is different for people whose fixed-rate mortgage is coming to an end.
Millions of households have mortgages that were fixed when interest rates were considerably different. When those deals expire, borrowers have to refinance at whatever rates are available at the time.
Today's decision means borrowers cannot simply assume that mortgage rates will keep falling rapidly over the next few months.
That does not mean mortgage rates are about to rise sharply. Mortgage lenders take account of wholesale funding costs and expectations about future interest rates as well as Bank Rate itself.
But it does mean that someone whose fixed-rate deal expires soon should probably budget on the basis of current market conditions rather than assuming a much cheaper mortgage will automatically be available later.
What about new mortgages?
There is some good news here.
Mortgage rates are already well below the Bank Rate itself in many cases, because lenders compete with each other and use a range of funding sources.
Consequently, a Bank Rate of 3.75% does not mean someone taking out a mortgage will necessarily pay 3.75%.
It also means that a future Bank Rate cut would not necessarily produce an equivalent reduction in every mortgage rate.
The Bank itself points out that commercial lenders take account of factors including their own costs and the perceived risk of individual loans when setting rates.
Personal loans and credit cards
Borrowers with credit-card balances and other variable-rate debt are unlikely to get any immediate benefit from today's decision.
This is particularly important because credit-card interest rates can be far higher than mortgage rates.
For someone carrying a substantial balance, reducing the debt can therefore have a much bigger effect on household finances than waiting for the Bank of England to cut Bank Rate by another quarter of a percentage point.
Businesses are affected too
The same applies to businesses. A small business with an overdraft or variable-rate loan will not get a reduction in borrowing costs following today's decision.
For companies considering investment, the cost of finance remains an important consideration.
That matters because Britain needs investment in machinery, housing, infrastructure, technology and new businesses if productivity and economic growth are to improve.
High interest rates can therefore have an effect well beyond the mortgage market.
Could rates rise again?
This is where today's decision becomes particularly interesting.
The Bank has not said that rates are going to rise. But the possibility cannot be ignored.
Inflation is now 3.1%, well above the 2% target, while energy prices remain volatile. The Bank has to consider whether the latest increase is temporary or whether it could feed into wider price and wage pressures.
Market participants have already been considering both possibilities. The Bank's own June survey showed the median expectation among respondents was for Bank Rate to remain at 3.75% through much of the coming year, although some respondents saw a possibility of rates reaching 4%.
That is a useful reminder that forecasts are not guarantees.
The Bank's Governor Andrew Bailey has also stressed that a rate increase is not inevitable and will depend on how the economic and geopolitical situation develops.
Savers are affected as well
There is another side to the story. The same interest rate that makes borrowing expensive provides income for savers.
Keeping Bank Rate at 3.75% therefore means savers continue to benefit from relatively attractive interest rates compared with the years when Bank Rate was close to zero.
But inflation matters here too. If inflation is 3.1%, a savings account paying 3.75% gives a positive return before tax, but the real increase in purchasing power is much smaller.
Someone paying tax on their interest could find the real return smaller still.
The bigger question: where do rates go from here?
This is probably the question most borrowers are asking.
Earlier expectations that interest rates would continue falling have been disrupted by the renewed inflationary pressure from energy prices.
The Bank therefore finds itself in an uncomfortable position.
Cut too quickly and it risks allowing inflation to remain above target for longer.
Keep rates too high for too long and it risks putting unnecessary pressure on households, businesses and the wider economy.
The Bank's own explanation is quite clear about how the mechanism works. Higher interest rates increase borrowing costs, reducing spending and demand. That can help slow inflation. Lower rates do the opposite.
The difficulty this time is that part of the inflation problem is coming from the cost of energy rather than excessive borrowing or consumer demand.
Higher interest rates cannot produce more oil or gas.
What should borrowers take from today's decision?
Perhaps the safest conclusion is that certainty has become more valuable. Someone with a variable-rate mortgage remains exposed to future Bank Rate decisions.
Someone fixing a mortgage obtains greater certainty but may miss out if rates subsequently fall.
Someone with expensive unsecured debt may benefit more from reducing the balance than from waiting for a relatively small change in Bank Rate.
And anyone whose fixed mortgage is due for renewal should look carefully at the likely monthly payment rather than assuming that interest rates will soon return to the exceptionally low levels seen before 2022.
For borrowers, today's decision is therefore neither a major setback nor a major breakthrough.
It is a warning that the final stage of bringing inflation back to 2% may prove difficult.
Bank Rate is now 3.75%. The direction of travel is no longer as clear as it appeared earlier in the year.
For households planning their finances, that may mean one thing above all:
Don't build a household budget around the assumption that interest rates are definitely going down.