Bank of England keeps interest rates at 3.75%

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Bank of England keeps interest rates at 3.75%

The Bank of England has held interest rates at 3.75%, with uncertainty persisting due to the conflict in the Middle East.

The Monetary Policy Committee (MPC) opted for a cautious approach, voting 8–1 to keep rates unchanged.

One member voted to increase the Bank Rate by 0.25 percentage points, to 4%.

Forceful tightening in monetary policy

The MPC said of its decision: “The MPC judged that, while there were likely to be some second-round effects, continued weakness in activity would limit their strength. However, these effects could be more pronounced the larger and more persistent any rise in global energy prices.

“Relative to the previous energy shock in 2022, current events are occurring from a starting point of lower inflation, weaker demand, a looser labour market, and already restrictive monetary policy.

“Wage growth has been easing towards target-consistent rates, while private sector wage settlements for 2026 had largely been completed before the shock occurred.”

The Bank of England also warned that, in a worst-case scenario, prolonged conflict could be “likely to warrant a forceful tightening in monetary policy.”

Industry reaction

Jeremy Leaf, north London estate agent and a former RICS residential chairman, says: “Although it is likely interest rates will go up again before they start coming back down, the hold today is a nod to the inflationary pressures which are building due to the impact of war in the Middle East. Certainly, the Bank did not want to do anything which would compromise what little growth we have seen in the economy recently, which would clearly prove to be self-defeating.

“As far as the impact on the property market is concerned, the effects are likely to be fairly minimal although encouragingly we have noticed some mortgage costs starting to creep down again. This will certainly help to  improve confidence which remains at a relatively low ebb.”

Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, says:  “While a hold from the Bank of England was expected, as ever it’s the tone and forward guidance in the minutes that is just as important.

“As far as the housing market is concerned, the underlying need to move remains strong and, for well-priced, high-quality homes, demand continues to hold up. In terms of pricing, the closer the asking price is to true market value, the greater the likelihood of securing a successful sale.

“Buyers are not stretching themselves to make offers they don’t believe will be accepted – particularly in this rate environment – they are simply choosing alternative properties. While the wider economic background may temper the pace of house price growth, we are seeing a more price-sensitive market where realism and accurate positioning are key.”

Nathan Emerson, CEO at Propertymark, said: “Considering current tensions worldwide, it is reassuring to see base rates held steady. For those on the property ladder or thinking of approaching the buying and selling process, today’s news brings a sense of relief across the coming months.

“However being realistic in sentiment, we currently sit in the middle of a sensitive situation where many households haven’t yet fully recovered from issues connected to the cost of living. While it may genuinely feel the pressure is still on regarding affordability, it is hoped as tensions de-escalate globally, we will proceed to a more confident footing which offers more robust levels of household affordability for consumers within the long-term journey of purchasing a property.”

Emily Willaims, director of research at Savills, said: “Many will be breathing a sigh of relief that there was strong consensus from the MPC today to hold rates, despite mounting inflationary pressures.

“Transaction data released today points to a degree of resilience in the housing market. Most of these deals are likely to have been agreed before the escalation of the conflict in the Middle East, but this highlights an undercurrent of demand that could re-emerge if conditions improve. While several lenders have cut rates in recent days to remain competitive, buyers are expected to sit on their hands until greater clarity emerges.

“The path to lower interest rates now looks increasingly uncertain, pointing to a housing market that will remain highly price sensitive. The true impact on activity is likely to become clearer in the coming months, as mortgage offers agreed prior to the conflict begin to expire and buyers reassess affordability.”

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