Bank of England Holds Fire as Energy Prices Continue to Rise

The Bank of England's decision to hold interest rates steady at 3.75% is a welcome relief for Chancellor John Healey and mortgage holders across the country.

Energy prices have been rising again in recent weeks, sparking concerns about another inflationary shock. However, the MPC voted six to three to maintain the current rate, citing the need to keep interest rates steady as energy prices continue to impact fuel and food costs.

Moneyfacts analysis found that an average new mortgage rate is now 5.59%, significantly higher than the 4.9% at the beginning of this year. If a 0.25% hike had occurred, Moneyfacts estimated it would increase average mortgage payments by around £450 per year.

The decision comes as economists are concerned about 'insidious second-round effects' where employees demand pay rises and employers hike prices to match. Huw Pill, the Bank's chief economist, was one of the three dissenters who voted for a hike to 4%, citing concerns about upside inflation risks.