𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

The conflict in the Middle East has continued into a second week and there are already major fears about the impact that soaring energy prices could have on people in the UK.

In particular, rising prices and energy bills could fuel higher inflation and see the Bank of England eventually raise interest rates.

However, rising rates have knock-on effects elsewhere, including on people’s mortgages and savings.

Here, The Independent looks at how the war in the Middle East could impact rates – and your finances.

Will interest rates go up or down?

Interest rates were cut four times over the course of 2025, with the Bank of England (BoE) bringing down the main rate from a high of 5.25 per cent to the current level of 3.75 per cent.

That has been good news for mortgage holders renewing deals that started in 2023 or after, who have benefited from cheaper borrowing costs, and it was expected that interest rates could fall further – even with another rate cut possible when the BoE’s Monetary Policy Committee (MPC) meet on 19 March.

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Some analysts were predicting three cuts across the course of 2026, bringing us back down to a base rate of 3 per cent which was last seen in December 2022.

However, those analysts have quickly changed tune over the past week as geopolitical events threaten the global economy, with rising inflation once more a significant threat and interest rates likely to rise in response.

Oxford Economics are predicting a hold vote in March, though have lifted their inflation forecast for the latter part of the year in accordance with anticipated rising energy bills, while noting that some MPC members have been hoping for lower inflation to pull down salary growth – which this situation may clearly rule out.

UBS predict that the BoE will delay any potential cut until April at the earliest, with most MPC members voting to hold this time around – effectively deferring their decision for a month to allow the picture to become more clear.

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That’s despite concerns about the weak labour market which might leave two members, Swati Dhingra and Alan Taylor, to still vote for a cut, the bank’s research note said.

That prediction of being in wait-and-see mode was reiterated by Thomas Pugh, chief economist for RSM UK, who pointed out the markets – which change rapidly with world events, rather than being a direct indictor of what’s to come – were now showing more chance of a future rise than cut in interest rates.

“The markets have gone from a nailed-on rate cut to virtually no chance,” Mr Pugh told The Independent. “Even if they come to a deal this week I still don’t think you get a rate cut – there’s too much volatility at the moment.

“We’ve gone from pricing in two rate cuts this year to almost looking like a rate rise is priced in. It’s looking like the start of another inflationary shock cycle, hopefully not as bad but still with a lot of uncertainty.

“Normally the BoE can ignore one-off shocks because it falls out of the [inflation] cycle in a year’s time. That was expected at the start of the Russia crisis and that turned out to be the wrong policy. With inflation having been above-target for five years or so and looking unanchored, they just don’t have the luxury of sitting back and looking through it.”

Mortgages

The potential consequences of the rising oil and gas prices include potentially higher food and goods costs, higher fuel prices and, if the situation is prolonged, an increase to mortgage deals through rising interest rates.

“Mortgage rates eased dramatically in 2025, helped by six interest rate cuts since August 2024, but the outlook today is very different from just over a week ago,” said Alice Haine, finance analyst at Bestinvest.

“Shifting interest rate expectations are already filtering through to the market, with some major lenders announcing increases to their fixed-rate products in response to the crisis, and Moneyfacts data shows the average two- and five-year fixed deals have edged higher over the past week.”

Right now those are marginal adjustments; some have added 0.1 to 0.25 per cent onto a range of deals, similar to the amounts by which they were coming down each time across the past few weeks and months.

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Mortgage deals on the market typically alter in response to swap rates, which are contracts for payment between financial firms. When there is an expectation of future movements in the BoE’s base rate, swap rates may rise and fall ahead of time accordingly.

Britain’s housing market has not been in great shape over the past 12 months but there had been signs of improvement recently, with an increase in first time buyer activity being boosted by those falling mortgage rates.

Halifax’s house price index showed prices rose again in February of this year, up 0.3 per cent to an average property price of just over £301,000.

Another spike in mortgage costs might threaten to derail that progression, which is an important part of growing the UK economy.

Savings

The other side of the household finances equation to mortgages is savings.

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When interest rates go up, people with money in the bank can typically benefit from it as they are able to earn a better return on their cash. For some time the best easy access rate on the market has been at 4.5 per cent with Chase, but already this week there have been one or two signs that others are upping their rates to compete with that, including in some cash ISA providers.

It is not yet certain that the BoE will raise interest rates further but a March “hold” call now looks increasingly likely, with another vote in April perhaps offering a better chance to assess matters more than a couple of weeks after the attacks in Iran began.

With the ISA deadline of 5 April also drawing near, it’s a timely reminder for savers to both maximise their money’s earning potential, and also make use of tax-free allowances this year while they still can.