Bank of England holds interest rates as Middle East conflict continues

The possibility of a cut in interest rates looks a bit further away because of the conflict in the Middle East.

As recently as last month, economists were predicting that an interest rate cut could be just around the corner.

But the US-Israel war with Iran has changed the picture completely, causing global oil prices to surge and fuelling fears of a rise in inflation.

So the Bank of England (BoE) is remaining cautious for now and keeping interest rates on hold at 3.75%.

What are interest rates?

The BoE interest rate is the rate at which the UK’s central bank lends money to commercial banks. 

Interest rates directly impact borrowing costs for loans, such as mortgages and credit cards, as well as the returns on savings.

They’re also the lever that the BoE can pull if it wants to tackle inflation or encourage spending. 

What do interest rates have to do with inflation?

Interest rates can be used to keep inflation under control and close to the BoE’s 2% target.

Higher rates can encourage people and businesses to save more and spend less.

And over time, that can help slow down price rises.

Lower rates have the opposite effect, making it cheaper to borrow and easier to spend, which can push prices up.

Inflation fell to 3% in January - the lowest level since March 2025. 

Worried about rising bills?

If you’re worried about how rising costs could affect your budget, it can help to see the bigger picture.

Our free and interactive household bills calculator gives you a personalised forecast of how your monthly costs could change.

It only takes a couple of minutes to use and shows how bills may change based on where you live.

Get on top of your budget

It’s also worth making sure you know how much money you have coming in and how it’s being spent.

You’ll then be able to see where you can make savings and prioritise money for essential expenses.

Check out our guide to how to create a budget to get started.

And give our budget planner a try - it’s free and easy to use.