For the first time in over a year, the conversation around UK interest rates has turned from when the next cut will come to whether the next move might actually be a rise. On 17 September 2026, the Bank of England held the base rate at 3.75%, but the vote and the accompanying commentary made clear that the era of falling rates may be pausing rather than continuing.
Disclaimer: This article is for general information only and reflects the Bank of England's decision and market commentary available at the time of writing. Interest rate policy can change quickly in response to new economic data. This article does not constitute financial advice, and you should seek independent advice on borrowing, mortgage or savings decisions specific to your circumstances.
This article explains what the Bank of England actually decided, why the picture has shifted from rate cuts to a genuine possibility of a rise, and what it means in practical terms for businesses and individuals managing borrowing, cash flow and savings.
What the Bank of England Actually Decided
At its meeting on 17 September 2026, the Monetary Policy Committee voted by a majority of six to three to hold the base rate at 3.75%. The three dissenting members voted for an immediate increase to 4%. This was the sixth consecutive hold of 2026, following a rate cut from 4% to 3.75% back in December 2025, the most recent point at which rates actually moved.
What makes this decision notable is not the hold itself, which was widely expected by markets, but the direction of the debate underneath it. For most of the past two years, the question facing the Committee was how quickly rates could safely come down. This meeting marked a genuine shift, with three members actively pushing for a rise rather than simply resisting a further cut, and the Bank's own commentary warning that a rate increase is becoming more likely rather than less.
Why the Picture Has Changed So Quickly
The driving force behind this shift is energy prices, pushed up by the continuing conflict in the Middle East. UK inflation rose to 3.1% in August 2026, comfortably above the Bank's 2% target, and the Bank has explicitly warned that inflation is likely to rise further over coming quarters as higher energy costs work their way through the economy.
This puts the Committee in a genuinely difficult position. Historically, a central bank raises interest rates specifically to bring inflation down, by making borrowing more expensive and cooling demand throughout the economy. The concern driving the three dissenting votes is that if higher energy costs are allowed to feed into wage negotiations and pricing decisions across the wider economy, described as a second round effect, the resulting inflation becomes considerably harder to bring back under control later. Raising rates now, even though the immediate cause of inflation is an external energy shock rather than domestic overheating, is intended to head that risk off before it becomes embedded.
From Cuts to a Possible Rise: How We Got Here
It is worth setting this decision against the recent run of rate changes to understand quite how significant a shift this represents. Rates were cut from 4% to 3.75% in December 2025, continuing a broader run of reductions through 2025 as inflation eased and the labour market softened. Through the first three quarters of 2026, the Committee held rates steady at 3.75% at every single meeting, generally citing a wish to see how the economy settled before moving further in either direction.
The Middle East driven energy shock has changed that calculus meaningfully. Market pricing derived from interest rate futures, as at mid September 2026, points towards the base rate potentially rising from 3.75% to around 4.5% by March 2027, and continuing to rise further into 2027, with some forecasts suggesting a peak approaching 4.9% by early 2028 if current pressures persist. These figures are market implied expectations rather than a Bank of England forecast or commitment, and they can and do shift quickly as new data emerges, but they reflect a genuine change in sentiment from a market that had spent much of the past two years pricing in further cuts.
Worked Example: What a Rate Rise Would Mean in Practice
To put this in concrete terms, consider a business with a variable rate loan of £150,000. At the current 3.75% base rate, assuming a lender margin of 2% on top, the interest cost for a year on an interest only basis comes to roughly £8,625. If the base rate rises by 0.25 percentage points to 4%, as three Committee members already wanted at the September meeting, the same loan's annual interest cost rises to approximately £9,000, an increase of around £375 a year for every 0.25 percentage point rise, before accounting for any change in the lender's own margin. A series of rises, rather than a single move, would compound this further, which is exactly why businesses carrying variable rate borrowing are being encouraged to model these scenarios now rather than waiting for further moves to actually happen.
What This Means for Businesses
For businesses carrying variable rate borrowing, whether through a business loan, an overdraft facility, or commercial mortgage repayments linked to base rate, the assumption that repayments would continue easing through 2026 and into 2027 now looks considerably less safe. It is worth reviewing your current facilities specifically, understanding which are directly linked to base rate and which are fixed, and modelling what a further 0.25 or 0.5 percentage point rise would do to your monthly cash outflow before it actually happens rather than after.
This also affects the cost of any new borrowing being planned, whether for equipment finance, working capital, or expansion funding. If a rise now looks genuinely possible rather than merely theoretical, locking in current fixed rate terms where they are available may be worth weighing against waiting, particularly for facilities you know you will need regardless of short term rate movements.
For businesses holding cash reserves, the flip side is that a period of stable or rising rates can be an opportunity to secure a better return on cash sitting in business savings accounts, provided that cash genuinely is not needed for near term working capital.
What This Means for Individuals
Tracker mortgage holders are the most directly exposed to any change in base rate, since these mortgages move automatically in line with it. Homeowners on a tracker deal have benefited from the cuts through late 2025, and the same mechanism means a rise would feed through to monthly payments just as directly and quickly.
Standard variable rate mortgage holders are also exposed, though lenders have discretion over exactly how and when they pass base rate changes through, so the effect is often somewhat delayed and does not always match the base rate move precisely.
Fixed rate mortgage holders are protected from any change for the length of their current deal, but anyone with a fixed rate ending in the coming months should be paying close attention to this shift, since the rates available when they come to remortgage may no longer be trending downward in the way they might have expected even a few months ago.
For savers, a pause in rate cuts, and the genuine possibility of a rise, is better news than it has been for some time. Average savings rates fell considerably through the cutting cycle of 2025 and early 2026, and a stabilising or rising rate environment gives savers a stronger case for reviewing fixed term savings products now, since a rate secured today may look more attractive than one available after a further Committee decision either way.
What Happens Next
The next scheduled decision from the Monetary Policy Committee falls on 5 November 2026, alongside a full Monetary Policy Report. Notably, this meeting comes just days after the Autumn Budget on 28 October 2026, meaning the Committee will have the Budget's tax and spending decisions to factor into its assessment before it votes. A further decision follows on 17 December 2026, completing the scheduled meetings for the year.
Given how quickly sentiment has shifted since the summer, it would be a mistake to treat any of the market implied forecasts mentioned above as a settled outcome. The Committee has been explicit that its next moves depend heavily on how energy prices and the wider inflation picture develop between now and each meeting, and a resolution to the underlying geopolitical situation could change the picture again in either direction.
Frequently Asked Questions
Why would the Bank of England raise rates because of an energy shock it cannot control?
The Bank cannot influence global energy prices directly, but it can influence how much that price shock feeds through into wider inflation across the economy, through wages and other pricing decisions. Raising rates is intended to reduce that second round effect, even though the initial cause of higher inflation sits outside the Bank's direct control.
Is a rate rise now definitely going to happen?
No. The September decision was a hold, not a rise, and market implied expectations are forecasts based on current pricing, not a Bank of England commitment. The Committee has been clear that its future decisions depend on how inflation and the wider economy develop between now and each scheduled meeting, and this can and does change.
How quickly would a rate rise affect my mortgage?
This depends on your mortgage type. Tracker mortgages move in line with base rate almost immediately. Standard variable rate mortgages typically follow within a similar timeframe, though the exact timing sits with your lender. Fixed rate mortgages are unaffected until your current fixed term ends.
Should my business fix its borrowing costs now given this uncertainty?
This depends on your specific facilities, how much certainty you value in your cash flow planning, and the fixed rate terms actually available to you. It is worth modelling both scenarios, continuing on a variable rate and locking in a fixed rate, against your own cash flow forecast before deciding, rather than reacting to headlines alone.
Why did some Committee members want a hike rather than a hold?
The three dissenting members were most concerned about the risk that persistently high energy driven inflation becomes embedded in wages and pricing decisions across the economy, making it considerably harder to bring inflation back to the 2% target later. Their view was that acting sooner, even against a backdrop of an external energy shock, reduces this longer term risk.
What does this mean for business loan applications I am planning to make?
If you are planning to borrow in the coming months, it is worth getting a clear picture of current terms now and asking your lender specifically how a base rate change would affect the facility you are considering, whether it is fixed for a set period or variable throughout. This is a reasonable question to raise directly as part of any new borrowing discussion.
What CoreAcc Accountants Can Help You With
Interest rate movements affect cash flow forecasts, borrowing decisions and investment timing across almost every business we work with. CoreAcc Accountants helps clients model the effect of interest rate changes on existing borrowing and planned finance, review whether fixed or variable terms make more sense given current conditions, and build interest rate sensitivity into wider cash flow forecasting, an approach covered in more detail in our guide to cash flow forecasting for growing businesses.
Get in Touch
If rising borrowing costs would put pressure on your business, or you want help reviewing your finance arrangements ahead of the Bank of England's next decision on 5 November, contact CoreAcc Accountants and we will work through the numbers with you.
CoreAcc Accountants is an ACCA accredited firm of Chartered Certified Accountants based in Borehamwood, Hertfordshire. This article was published on 18 September 2026 and reflects the Bank of England's decision and market commentary available at the time of writing. It does not constitute financial advice. Always seek independent advice tailored to your individual circumstances.
