The Bank of England decided to keep its main interest rate at 3.75% during its March 2026 meeting, maintaining the lowest level seen since early 2023.
Although rates had previously been reduced from 4% in December 2025, expectations for further cuts this year have shifted. This change is largely due to the economic uncertainty caused by the ongoing conflict involving Iran, which may push inflation higher again.
What Interest Rates Mean
Interest rates determine the cost of borrowing money and the return on savings. The Bank of England sets a base rate that influences how much banks charge for mortgages and loans, as well as what they offer savers.
The Bank adjusts rates to control inflation, aiming to keep it close to 2%. When inflation rises above this target, rates are typically increased to reduce spending and slow price growth.
Recent Trends in Rates and Inflation
Inflation in the UK has fallen significantly from its peak of 11.1% in October 2022. By February 2026, it stood at 3%, unchanged from January.
Lower fuel costs helped offset price increases in areas like clothing. However, these figures were recorded before tensions in the Middle East escalated, which could drive energy prices up and increase inflation again.
Interest rates previously peaked at 5.25% in 2023 before gradually declining through a series of cuts during 2024 and 2025. Since December 2025, the rate has remained steady at 3.75%.
Future Outlook
Earlier in 2026, many experts predicted at least two rate cuts during the year. However, the situation has become less certain due to geopolitical risks.
Some analysts now believe rate cuts may not happen at all this year, and a few even suggest rates could rise instead. That said, weak economic growth and a softer job market mean an increase is not guaranteed.
At the March meeting, all nine members of the Bank’s policy committee agreed to hold rates steady while monitoring developments.
The next decision is scheduled for April 20.
Impact on Households
Interest rates directly affect mortgages, loans, and savings:
- Mortgages:
Around one-third of UK households have a mortgage. Those on tracker or variable rates may see immediate changes when rates move.
However, most borrowers are on fixed deals, so changes mainly affect future mortgage rates. - Rising Mortgage Costs:
Recently, average rates for new fixed deals have increased noticeably. Two-year and five-year mortgage rates are now above 5.5%, the highest levels in months. - Refinancing Pressure:
Many homeowners with older, low-rate deals (around 3% or less) will need to refinance in the coming years, likely facing much higher repayments.
