Interest rates stay on hold - what it means for you

The Bank of England has kept interest rates on hold at 3.75%.

A freeze was widely expected after yesterday’s news that inflation stayed steady at 2.8% last month.

At the same time, there’s been genuine progress in ending the US-Israel war with Iran, which means a feared surge in the cost of living may not happen.

While talks will continue, the current peace deal includes the reopening of the Strait of Hormuz - a key shipping route that about a fifth of the world’s oil supply passes through – so oil will hopefully start flowing again soon.

That would significantly ease the upwards pressure on energy, food and petrol prices - and that will be welcome news for everyone.

Impact of war will linger

We should stress though that even with a peace deal in place, the economic consequences of the war won’t instantly be reversed.

As Yael Selfin, chief economist at KPMG UK, says: “The adverse impacts of the disruption to energy supplies are already in the pipeline, with household energy bills set to rise by 13% from next month."

It’s also important to remember that the situation in the Middle East remains unpredictable, with President Trump threatening just the other day that he’d “drop bombs” in Iran if he didn’t like the terms of the final peace deal.

Against that backdrop, it makes sense for the Bank of England to take a wait-and-see approach when making interest rate decisions.

What are interest rates?

The Bank of England interest rate is the rate at which it lends money to commercial banks. 

So they can directly affect borrowing costs for loans, such as mortgages and credit cards, as well as the returns you get on your savings.

Interest rates are also the lever that the Bank of England can pull if it wants to tackle inflation or encourage spending. 

How are interest rates connected to inflation?

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

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

And that can gradually help slow down price rises.

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

Worried about rising costs?

If you’re struggling with your day-to-day expenses, there are a few practical steps you can take.

Create a household budget

Take a proper look at your income and expenses, so you can prioritise your spending and be sure you’ve got money available for vital costs like bills.

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.

Find out what benefits you can claim 

You may be eligible to receive financial support if you’re struggling.

So use our benefits calculator to see what you could be entitled to claim. 

It might be more than you think.

Get help with your debts

If you’re feeling the pressure of debt, contact us for confidential, practical and impartial debt advice.

Check our regular money saving tips

We’re always here with handy advice on how you can save money.

We’ve put together useful tips on key priorities like:

• how to save energy
• how to keep the cost of your food shop down
• 50 ways to cut your fuel costs
• how to lower the cost of your holiday

And don’t forget to check back here regularly for our round-ups of standout deals and low-cost recipes that can save you money in the supermarket.