Mortgage holders and borrowers are facing higher costs following the Bank of England’s decision to increase interest rates by 0.25 percentage points, taking the Bank Rate to 4%.

The decision, made by the Bank’s Monetary Policy Committee (MPC), comes amid continued disruption to global energy supplies caused by conflict in the Middle East, particularly around the Strait of Hormuz. Rising energy prices have pushed up the cost of fuel and household utility bills, adding to inflationary pressures across the UK.

Inflation has already risen to 3.5%, and the Bank expects it to reach around 5% by the middle of 2027 as higher energy costs begin to affect the wider economy.

Although there is currently little evidence of significant knock-on effects on other prices and wages, the Bank is concerned that businesses facing higher energy bills may eventually pass these additional costs on to customers through increased prices.

The UK economy has also proved more resilient than expected, with stronger economic activity adding to the risk that rising energy costs could feed into wider inflation.

The Bank believes that raising interest rates now should help limit these knock-on effects and bring inflation under control.

What does this mean for you?

The increase could mean higher monthly repayments for those on tracker or variable-rate mortgages, as well as increased borrowing costs for people taking out new loans. Those on fixed-rate mortgages will not see an immediate change to their existing monthly payments, although future remortgaging deals may be affected.

For savers, higher interest rates could also bring opportunities for better returns on savings accounts, depending on how banks and building societies respond.

With inflation expected to rise further, households and businesses alike may feel the impact of higher costs over the coming months.

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