Swap markets and energy prices shape a more cautious rest-of-year outlook
The Bank of England’s decision to hold the base rate at 3.75% will have a limited immediate effect on mortgage rates, an industry commentator believes.
“For borrowers, a hold in Bank Rate is unlikely to trigger a major shift in mortgage pricing on its own, because much of the market adjustment has already happened,” said Nicholas Mendes (pictured top), mortgage technical manager at London brokerJohn Charcol.
“Fixed mortgage rates are driven more by swap markets and lender funding costs than by the base rate decision in isolation.”
Mendes said markets had already moved to reflect a slower pace of cuts than had seemed likely only weeks earlier, and that lenders had begun responding. “Recent market moves suggest a more cautious path is now being priced in,” he added. “That helps explain why some lenders have already started to reprice and why hopes of quick rate cuts have faded for now.”
He said the change in pricing expectations did not necessarily point to a sharp move higher, but it reduced the likelihood of near-term falls unless sentiment improves.
“The more likely outcome is a market that stays sensitive, with pricing moving in smaller steps rather than through any dramatic reset,” Mendes stated.
For borrowers approaching the end of a fixed-rate period, he urged early action to manage the risk of adverse repricing while keeping options open. “That gives protection if pricing worsens, while still allowing time to switch to something better before completion if rates improve,” he explianed.
Looking ahead to the rest of 2026, Mendes said the market was now anticipating a more gradual easing cycle, shaped in part by external shocks. “Markets have clearly shifted,” he noted. “A slower and more cautious path for rate cuts is now being priced in than looked likely only a few weeks ago.”
He added that the base rate was likely to remain on hold until the Bank of England was confident the latest energy-led inflation rise was not spilling into wider price pressures, which could delay the next phase of easing.
“If this proves to be a temporary spike and underlying inflation continues to soften, cuts later in the year are still possible,” Mendes said. “If energy prices stay elevated for longer, or inflation expectations start to drift again, rates may stay higher for longer than markets were expecting at the start of the month.
“For borrowers, the message is simple. The market may still improve over time, but the path down now looks slower, bumpier and more dependent on events outside the UK.”
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