At its 18 June meeting, the Monetary Policy Committee (MPC) voted in a majority decision of 7-2 to hold interest rates for the fourth consecutive time at 3.75%. With steady CPI inflation, easing global energy prices, and resilient property market conditions, the decision to maintain interest rates at 3.75% is a sign of welcomed stability.
Such a sign is expected to raise consumer confidence and, correspondingly, facilitate greater activity in the property market. This is especially important due to the property market, driven by consumer circumspection emerging from the ongoing conflict in the Middle East, experiencing a sustained period of subdued exchange activity.
Causes Behind Holding Interest Rates
The Bank of England has outlined two main reasons behind the decision to hold interest rates. First, energy prices have steadily fallen since the outbreak of the Middle East conflict, though they have yet to eclipse pre-February 2026 price levels. Second, even though the inflation figure has failed to meet the Bank of England’s target of 2.0%, inflation in May has dropped to 2.8%, alongside the pace of food price growth halting at a 17-month low.
In both cases, although the metrics fail to meet the optimal targets, these decreases nevertheless indicate that the UK economy exhibits signs of economic recovery. Further, the effect of these decreases can be materially felt by workers and businesses, thereby alleviating some of the economic hardship arising from the sharp spike in energy prices and inflation since February.
The Bank of England Governor Andrew Bailey justified keeping interest rates at 3.75% as ‘the right position to be in at the moment’ and that it was ‘a sensible decision in light of the news’. Bailey elaborated that ‘we’ve obviously now got this understanding about what’s going to happen in the Middle East and energy prices have come down quite a lot, but they’re still above where they were before this conflict started. Inflation is higher than we expected it to be. I really expected, and I really believe we would have been back in a 2% target by now. But it is good news. But of course now what we’ve got to do is get it back to 2%.’
The Bank of England’s overall message is guarded prudence; while acknowledging that the economic conditions have noticeably improved since the last meeting in April, there has been caution directed towards the scale and speed at which energy prices and inflation will decline in the medium term.
The Impact on the Property Market
‘With the base rate held at 3.75%,’ Ben Nichols, the CEO of RAW Capital Partners, said, ‘the market has something it badly needed: a little more stability. In the early days of the Middle East conflict, there was a huge amount of swap rate volatility, and many lenders were quick to reprice. However, with oil prices easing following news of a US-Iran deal, the outlook is already looking clearer than it did just a few weeks ago. That should help settle market expectations and, most importantly, give investors greater confidence to move ahead with their plans.’
By holding interest rates at 3.75%, the Bank of England has provided a degree of certainty and stability to prospective homebuyers. This is critical to encourage greater confidence for budgeting for mortgage repayments, which in turn may prompt more prospective consumers to initiate the next steps in acquiring a property.
Ben Thompson, the director of home moving strategy at Mortgage Advice Bureau, said: ‘Our research found that 41% of prospective buyers are waiting for a ‘sign’ before taking the next step, and a sustained period of rate stability could provide some of the reassurance they’ve been looking for.’
Similarly, the stability signalled by the Bank of England has pushed lenders to slash interest rates. Barclays, Virgin Money, and Nationwide have lowered interest rates on selected products, with slashes ranging from 0.22 to 0.8 percentage points. Nationwide’s new two-year fixed rate for purchases now starts at 4.29% with a £1,499 fee, while Barclays has moved its two-year fixed rate to 4.3%. Dudley Building Society has introduced an even greater reduction for its buy-to-let, residential, and expat products: some selected products have fallen by as much as 1.10 percentage points.
Encouraging Consumer Confidence
Maintaining interest rates at 3.75% is an assurance to prospective homebuyers and borrowers that the UK property market is withstanding inflationary pressures. It is also a testament to the resilience of the UK economy in adapting to the fast-moving and often fluctuating events happening on the international stage.
As such, the decision to hold interest rates is expected to motivate prospective homebuyers who were previously wary or hesitant to take the next steps in acquiring property.
