The Bank of England’s Monetary Policy Committee has voted unanimously to maintain the base interest rate at 3.75%, citing uncertainty from the ongoing conflict in the Middle East and its potential impact on inflation.
The decision marks a shift from expectations just weeks ago, when a rate cut appeared likely following the February hold. However, the war with Iran, which began nearly three weeks ago, has altered the economic outlook despite inflation falling to 3% in January from 3.4% in December.
The MPC described the conflict as “a shock” to the economy, stating it would “continue to monitor closely the situation in the Middle East and its impact on global energy supply and energy prices.” The committee confirmed it “stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium term.”
Mortgage market response
Major lenders have already responded to the geopolitical uncertainty by raising mortgage rates and withdrawing products. Average two-year fixed rates have risen to 5.20%, up from 4.84% before the conflict began. Nearly 700 mortgage products have been pulled from the market, representing the largest upheaval since the 2022 mini-Budget.
The increases reflect movements in swap rates, which lenders use to price fixed-rate mortgages. These rates have climbed in response to market volatility, even though they remain lower than this time last year.
Property market impact
Estate agents report that transaction activity has remained resilient despite the rate hold and mortgage market adjustments. Kevin Shaw, National Sales Managing Director at LRG, said application levels from prospective buyers are up 9% compared to 2025, with no meaningful slowdown in agreed sales or new listings.
Property supply has reached an eleven-year high for this time of year, according to James Evans, CEO at Douglas & Gordon, providing buyers with increased choice while keeping price growth measured.
Jeremy Leaf, a north London estate agent and former RICS residential chairman, noted that “the improvement in activity in the housing market seen in the early part of 2026 is still there to an extent but caution now prevails.” He added that buyers who are not sellers are increasingly building contingencies into their calculations for higher mortgage rates.
International investor perspective
Damien Jefferies, Founder of Jefferies London, said consistency in monetary policy is particularly important for international and high-net-worth buyers. He noted that “in times of wider global change, we often see an increased appetite from overseas buyers looking to secure assets within established, transparent markets such as the UK.”
Looking ahead
The MPC is scheduled to meet again at the end of April and in June. Joshua Elash, Director at MT Finance, expects the hold to be “a brief measure,” with the committee likely to resume gradual rate reductions once there is “visibility on a successful conclusion to the conflict with Iran.”
Jonathan Samuels, CEO at Octane Capital, emphasised that while swap rates have climbed in the short term, they remain notably lower than a year ago by a wider margin than the increase seen since the start of the Iran conflict, suggesting the underlying outlook remains more stable than in 2025.
The decision to hold rates provides stability for existing borrowers, with mortgage repayments remaining predictable amid ongoing cost-of-living pressures. However, those approaching remortgage or seeking new deals face a more uncertain pricing environment as lenders adjust to volatile market conditions.