LONDON, September 17 — The Bank of England left its base rate unchanged at 3.75% for a sixth consecutive meeting, holding borrowing costs at their lowest level since February 2023. The decision, reported by BBC cost of living correspondent Kevin Peachey, extends a pause that has now run through January, March, April, June, July and September 2026. The mechanics here are straightforward, even if the politics are not.
The base rate is what the Bank charges other banks and building societies to borrow money, which in turn shapes what those institutions charge customers for mortgages and pay on savings. The Bank moves that rate to keep UK inflation — the rate at which prices are increasing — at or near 2%.
When inflation sits above target, the Bank typically raises rates to encourage people to spend less, cooling demand for goods and services and limiting price rises.
Why the cuts stopped
Follow the money back, and the culprit is the war. Before the US-Israeli war with Iran, rates had been expected to fall in 2026. The economic fallout from the conflict has pushed up inflation across the globe, making cuts unlikely and rises a possibility.
The catch is that this is not a domestic story at all. The rate path tells its own story.
The base rate rose to 5.25% in 2023 and stayed there until August 2024, when the Bank began cutting. Five cuts brought rates down to 4%, before the Bank held at its meetings in September and November 2025. It then cut in December 2025 before settling into the current run of holds.
Inflation creeps back up
On closer reading, the inflation numbers explain the caution. The main UK measure, CPI, has dropped significantly since the high of 11.1% recorded in October 2022 as a result of the war in Ukraine. But it has been creeping up and is expected to go higher.
It was 3.1% in the year to August 2026, up from 2.9% the previous month. The Office for National Statistics, which tracks UK inflation, said the uptick was a result of higher energy costs, meaning petrol and diesel prices were rising too.
The US-Israel war with Iran has put up energy and fuel costs around the world, which has increased the pace of price rises more generally. At the start of the year, the Bank had been expected to cut interest rates twice in 2026, with the first drop predicted to come in March or April. The increase in fuel prices and inflation after the outbreak of the conflict has upended all of this.
Oil prices initially rose sharply as a result of disruption to supplies in the region, but dropped back when various ceasefires were agreed. They rose again when the US and Iran resumed a conflict.
Interest rates affect mortgage, credit card and savings rates for millions of people. What to watch next is whether the inflation creep continues into the autumn — and whether the Bank’s next move is a hold, or something sharper.
