Bank Rate Held at 3.75% as Oil Tops $100 a Barrel and Mortgage Costs Rise for British Households
The Bank of England is holding interest rates at 3.75% and has revised its inflation forecasts sharply upward, warning that the Consumer Prices Index could remain between 3% and 3.5% through the summer as the US blockade of the Strait of Hormuz sends oil prices surging past $100 a barrel.
The Inflation Picture
UK inflation, as measured by the Consumer Prices Index, held steady at 3.0% in February 2026 — well above the Bank of England's 2% target. Prior to the escalation of the Middle East conflict, forecasters had expected inflation to fall to around 2% from April 2026. Those projections have now been torn up. The Bank now anticipates CPI will remain elevated between 3.0% and 3.5% through the second and third quarters of 2026, with some external forecasters suggesting it could approach 4% during the year. The 2% target is not expected to be reached until early 2027 at the earliest.
Energy Prices: The Key Driver
The most direct impact of the US-Iran conflict has been on energy markets. Brent crude surged 8% to approximately $102 a barrel following the announcement of the Strait of Hormuz blockade, with US crude reaching $104. Petrol prices at UK forecourts have already risen by 19 pence per litre in 30 days, reaching an average of 157.5p per litre. For the 62% of Northern Irish households reliant on home heating oil, the situation is particularly acute — the average cost for 900 litres has more than doubled in recent weeks.
Bank of England Holds Rates
The Monetary Policy Committee voted unanimously to hold the Bank Rate at 3.75% at its March 2026 meeting, adopting a "wait-and-see" approach as it monitors the conflict's impact on prices. An interest rate cut at the next MPC meeting on 30 April is considered unlikely by most economists. Some forecasters, including JP Morgan, now predict a rate rise in June if energy costs remain elevated. The FTSE 100 stood at 8,312 as of 12 April 2026.
Impact on Households
The economic pressures are being felt acutely by British households. A typical two-year fixed mortgage rate has reached 5.84%, contributing to a slowdown in the housing market, which saw prices fall in March. The Resolution Foundation has warned that UK households' living standards are expected to fall as a result of the energy price shock, prompting calls for targeted support for lower-income families. While the National Living Wage increased by 4.1% to £12.71 per hour in April 2026, average pay growth of 3.8% means real wages grew by only 0.5% after accounting for inflation. House of Commons Library inflation briefing.
