The Bank of England's Monetary Policy Committee held the base rate at 4.5 percent following its latest scheduled meeting, confirming that the oil price shock generated by the US-Iran conflict had fundamentally altered the interest rate outlook for 2026. The decision reversed expectations, widely held at the start of the year, that the MPC would deliver two or three further cuts before the summer, gradually easing the pressure on mortgage holders and businesses that had accumulated through the high-rate period.
Governor Andrew Bailey indicated in remarks following the meeting that the committee remained committed to returning inflation to the two percent target but that the external shock from the Iran war had introduced "material upside risk" to the near-term inflation profile that could not be ignored. With Brent crude above $100 per barrel and UK pump prices rising sharply, the pass-through to household energy bills and broader consumer prices was already visible in monthly data.
The Organisation for Economic Co-operation and Development added to the sober assessment by cutting its UK growth forecast for 2026 from 1.6 percent to 0.7 percent — a reduction of more than half that reflected not only the direct energy price impact but the secondary effects on consumer confidence, business investment and trade.
Mortgage holders on tracker products and standard variable rates found themselves in limbo, with the rate reductions many had anticipated failing to materialise. Brokers reported a notable increase in enquiries from borrowers seeking to lock in fixed-rate products before any further upward shift in market pricing, though lenders had in many cases already adjusted their fixed-rate offerings to reflect the higher-for-longer expectation.
The rate hold also extended the pressure on first-time buyers, who had been counting on further rate reductions to bring monthly repayments within reach of their income multiples. Housebuilders acknowledged the impact, with Bellway — one of the UK's largest residential developers — warning publicly that the Iran war had torn up the picture of steadily easing financing conditions it had relied on for its medium-term production plans.
