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The Bank of England’s Monetary Policy Committee (MPC) voted by 6-3 to leave the base rate unchanged at 3.75% in July, with three members wanting to raise rates to 4%, amid concerns that we could see a jump in inflation in coming months.
Even though June’s inflation number eased to 2.6%, down from 2.8% in May, July’s higher energy bills have yet to feed through to households. When they do, this could push inflation up, prompting the Bank to consider raising interest rates to help bring it down again.
There have been six quarter percentage point rate cuts since the summer of 2024, with the first and second reductions having been made in August and November that year and the third, fourth, fifth and sixth in February, May, August and December last year. Markets previously were pricing in two further rate cuts in 2026 but following the conflicts, the Monetary Policy Committee has made it clear that it is poised to respond to any inflationary pressures, which could mean rates rise in coming months.
Ed Monk, Pensions and Investment Specialist at Fidelity International said: “Rates are on hold for now, but this may well be the calm before the storm. Households should brace for borrowing costs to rise in the months ahead.
“Financial markets prior to today’s decision were expecting a quarter-point rise some time before the end of the year, with further rises likely early next year and then again within 12 months from now. Were those rises to come to pass, they would take the Bank Rate to 4.5% and represent a significant squeeze on households.
“That can still be avoided, however, if the Bank can be assured that the energy price rises we have seen since the conflict in the Middle East will not widen out into higher wages and an inflationary spiral. As noted by the Bank today, there are signs of extra slack in the labour market which give hope that there will not need to be as many rate rises as markets are currently expecting.
“Beyond the Iran conflict, conditions are generally supportive of lower rates, with inflation – while still above target – tracking slightly below expectations.”
Here, we explain what July’s rate hold might mean for you and your finances.
Your savings
Savings rates remain competitive, but it’s still important for savers to take advantage of inflation-beating returns whilst they’re still available.
“Whether savers choose a shorter-term bond for one year, or a longer-term commitment of a five-year deal, both top rates have risen substantially in recent months,” said Rachel Springall, finance expert at Moneyfactscompare.co.uk. “This rare dose of good news for savers is somewhat of a silver lining after years of poor real returns.”
She urged savers to review their savings, as many may have money sitting in accounts paying low returns, with the average closed easy access account paying 2.40% on average.
“Over the course of 12 months, savers could miss out on over £400 in interest if they leave their cash to languish in a closed account if they have £20,000 saved,” said Springall.
“The message is clear, savers must feel encouraged to take advantage of lucrative returns on offer, regardless of any hold or change to the Bank of England base rate.”
You can find the current best fixed savings rates in our article Where can I find the best fixed savings accounts? and the best cash ISA rates in our guide Best cash ISA rates – which cash ISAs pay the most interest?
Those with longer-term savings goals – more than five years and preferably at least 10 – and who are comfortable accepting a level of risk, may want to consider investing some of their money in the hope of generating inflation-beating returns. However, remember that there’s a chance you could get back less than you put in, so investing isn’t for the faint-hearted, especially given current volatility.
Find out more about whether investing some of your savings could be right for you in our guide Investing – the basics.
What you can do
As mentioned, it’s essential to make sure your savings are working as hard as they possibly can for you, as often banks lure savers in with tempting rates only to reduce them a few months later.
Check savings websites such as Moneyfactscompare.co.uk or Raisin, or price comparison sites such as uSwitch or GoCompare to see if you can find a higher interest-paying account to move to.
If you have money in a fixed rate savings account and you think you could do better elsewhere, check what the penalties are for closing your account. In some cases, it may just be a few months’ interest, and you may be better off moving your money to an account paying higher returns.
Your pension
If you’re approaching retirement and considering using some or all of your pension savings to buy an annuity to provide you with an income, the rate hold is positive, as when rates are higher, this usually means you’ll get more for your money than previously.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown said: “Today’s interest rate hold is good news for anyone in the market for a guaranteed retirement income, as annuity rates remain robust.
“Interest rates are a key factor behind annuity rates, and we’ve seen them soar skyward in recent years as the Bank of England has hiked rates. They’ve remained robust even as interest rates have fallen back and they currently hover just under all-time highs.”
According to Hargreave’s Lansdown’ annuity search engine, a 65-year-old with a £100,000 pension can currently get up to £7,912 per year from a single life level annuity with a five-year guarantee.
“If you are looking to secure a guaranteed income, it’s important to do your research,” said Ms Morrissey. “Different providers offer different rates, so if you accept the first quote offered, you might not be getting the best income. Once bought, an annuity can’t be unwound, so you could be left to regret a hasty decision for a long time to come. Taking the time to use an annuity search engine to get quotes from across the market is a step closer to making the right choice.”
Find out more in our articles Annuity incomes reach record high – is now the time to buy?, Annuities explained and Why it pays to shop around for your annuity.
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If you’re considering seeking professional financial advice on the options available to you, we’ve partnered with nationwide Chartered independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial adviser. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.
Fidelius are rated 4.7 out of 5 from over 2,600 reviews on VouchedFor, the review site for financial advisers.
Your mortgage
The Bank’s decision to hold the base rate at 3.75% will come as a relief to homeowners, many of whom are already facing a sharp jump in their monthly payments when their fixed rate deals come to an end.
Laura Suter, director of personal finance at AJ Bell, said: “The fact more interest rate rises are expected in the coming months is less good news for anyone planning to remortgage or buy a property, because since the middle of this month we’ve seen lenders raising rates, with some major lenders hiking them this week too.
“It’s particularly difficult for buyers with small deposits, with the average rate for a five-year deal for those with a 5% deposit having hit over 6%*. These are often first-time buyers who are keen to get on the property ladder and out of the rental market. They face the dilemma of taking a bit longer to save up a larger deposit pot, meaning they can access cheaper mortgage rates, versus risking mortgage rates rising during that period.
“As some of the geopolitical tension subsides a little, pushing oil prices off recent highs, inflation fears may drop back a little, bringing down interest rate expectations and mortgage deals. However, the level of uncertainty around global developments mean this is far from guaranteed.”
If your current mortgage deal is finishing soon, you can find out about remortgaging in our article Five good reasons to remortgage now. Learn why mortgage rates move even when the base rate has stayed the same in our guide What are swap rates and how do they affect my mortgage?
What you can do
If you’re on a standard variable rate (SVR), you should remortgage to a cheaper deal if possible, as SVRs are usually the most expensive mortgage rates. You might also want to start looking around for a new deal now if your current mortgage deal is due to end in the next few months, as you can usually secure your next mortgage three to six months before you want it to begin.
Ms Suter said: “At times like this, it can make a great deal of sense to hedge your bets. If you have a remortgage due in the next six months, check if you can agree a deal for your remortgage now. If rates fall from here, you can shop around elsewhere, but if they rise again, you’ll have locked in at a competitive rate.”
If you’re planning to remortgage and are looking for a place to start, we have a mortgage affordability calculator, which will give you a rough estimate of what you might be able to afford, based on current market conditions.
Once you have a rough estimate, it can be helpful to compare different mortgage options to understand what your monthly repayments are likely to be.
Unless your situation is very straightforward, you may want to seek professional advice from a broker to find the best mortgage option for you. The advantage is that they will know which banks and building societies are more likely to accept your application. It’s definitely worthwhile if you are self-employed (unless you have been so for years) or your credit rating isn’t excellent.
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Want to speak to a mortgage adviser? Speaking to an experienced adviser can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 2,600 reviews.
If you’re finding it hard to keep up with your mortgage repayments, please don’t suffer in silence. Our article What can you do if you can’t pay your mortgage? explains what to do if you’re struggling with higher costs.
Your credit card and loans
Borrowing costs are unlikely to change given that rates have been held, but with an uncertain economic outlook, it remains important not to take on more debt if you can possibly avoid it.
If you have expensive short-term debts, it’s worth considering paying them down, and if you don’t have an emergency savings safety net to cover 3-6 months’ worth of essential expenses, it’s worth beefing them up if you can afford to do so.
What you can do
If you’re paying a high rate of interest on your credit card borrowing, try and get a 0% balance transfer credit card deal, so that you can pay off what you owe without being hit by hefty interest charges. Remember though that you must try and clear your balance in full before the introductory 0% period ends, or you’ll start being charged interest.
If you can’t get one, you have the right to reject the interest rate rise within 60 days and close your credit card account. The credit card company must then give you a reasonable time to pay off the money you owe.
If you’re worried that you won’t qualify for a 0% credit card deal, there are several credit checker and credit matcher tools available – and some credit card companies will also give you an indication of whether you’d be successful before you apply.
If you have a loan which you want to pay off quickly, lenders must allow you to do this, although you may be charged an early repayment penalty to do so. Lenders can charge you up to two months extra interest if you choose to pay back your loan sooner than planned. If your loan has less than 12 months left to run, they can only charge you a penalty of up to one month’s interest if you pay it off early.
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