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On the face of it, global conflicts and geo-political tensions, coupled with headline announcements from bankers and economists back at home in the City of London, appear far removed from what happens to the pound in our pocket.
But in the wake of the latest interest rate decision and what appears to be an increasingly uneasy truce in the Middle East, here’s how events from home and abroad affect our personal finances.
What’s on this page?
You don’t need to be an expert in geo-politics to understand that events far from the UK can ultimately have a bearing on the pound in our pocket.
When you fill up the car every fortnight, the variation in petrol prices at the pump is a reminder of how febrile the energy markets can be thanks to the latest developments in the Middle East. Especially, in the vital shipping and energy transportation channel that is the Strait of Hormuz.
The oil price, a key energy market indicator, has been jumping about like a firecracker in recent months and there’s no clear evidence of this trend settling down soon. Nor that tensions are coming to an end, despite recent news that both the US and Iran were on the cusp of signing a memorandum of understanding that would bring temporary peace to the region.
Closer to home, the Bank of England released its latest interest rate decision on 18 June. The Bank meets eight times a year to review this figure, and the decision always has a major bearing on that pair of all-important economic considerations: borrowing costs and inflation.
Unless you have taken out financial products with a fixed-rate guarantee, the Bank’s interest rate decision plays a significant role that affects just about all of our main household finances including savings, mortgages, and energy costs.
The Bank’s influential Monetary Policy Committee decided by seven votes to two to maintain its benchmark lending rate at a three-year low of 3.75% in a move that was widely anticipated by the markets.
The ‘Bank Rate’, as this lending rate is officially known (it’s also referred to as the base rate), influences the amount we are required to pay on loans such as mortgages, as well as the returns we receive on our savings.
The Bank of England’s main responsibility is to ensure financial stability. It is also tasked by the government to maintain inflation, the rate at which prices rise, at two per cent in the UK.
Since Russia’s invasion of Ukraine began four years ago, this aim has proven a tricky one for the Bank to achieve. The task is made harder because, in practice, the Bank really has only one economic lever at its disposal to tackle rising prices: the raising or lowering of interest rates.
Inflation peaked at a rate of 11.1% at the end of 2022. The figure has been on a broadly downwards trajectory since then, with the latest inflation readout for the UK in the 12 months to May this year standing at 2.8%. This was unchanged from the previous month, but it means the Bank continues to overshoot its target by nearly a whole percentage point.
This is important for savers who need to find interest-bearing accounts paying more than this rate just to stay ahead of inflation’s erosive effect.
Raising the Bank Rate is potentially one way the Bank of England could further bring down the headline inflation figure. But doing this could also risk depressing economic activity and heap increasing costs on households and businesses alike who continue to languish in a cost-of-living crisis.
A 13% price hike in the domestic energy price cap is already factored in for July 2026 to reflect soaring, historic wholesale energy prices. What’s more, energy analysts warn it could be months before energy prices revert to pre-Middle East conflict levels.
Kevin Brown, savings expert at financial mutual Scottish Friendly, says: “Policymakers have now been handed evidence that inflation is not currently accelerating despite the Middle East energy shock. The picture is still far from rosy, but households can take some relief that the Bank of England has not piled a rate hike onto an already complicated picture.
“July’s higher energy bills have yet to feed through to households, while transport inflation has already jumped sharply on the back of fuel costs. Inflation therefore may yet climb before it falls.
“For households, that means the cost-of-living squeeze isn’t over. Reviewing savings rates, building a financial buffer where possible, and considering whether longer-term money could work harder through investing remain sensible steps that individuals may want to consider in the current environment.”
Lindsay James, investment strategist at Quilter, says: “Whilst inflation was below expectations in May and currently under 3%, it is still likely to jump closer to 4% later in the year due to the coming impact of a higher energy price cap.
“Furthermore, despite recent falls in the oil price, it remains higher than it was last year and the Bank of England will feel nervous about cutting rates in that scenario even with a stuttering labour market and uninspired growth.”
Clare Stinton, senior personal finance analyst at Hargreaves Lansdown, says: “We are still seeing good savings rates on the table, with savers able to enjoy inflation-beating interest rates on their hard-earned cash.
“According to Moneyfacts, easy-access savings accounts are offering between 4.2% and 5%, while Cash ISAs are paying between 4.2% and 4.5%, with one-year Cash ISA fixes as high as 4.75%. Before opening any account, check the small print for any conditions that could impact the interest rate you get. That way, you can stay ahead and switch again if it drops, to keep your money working hard.”
By shopping around using a facility such as an online aggregator or comparison site, it’s possible to add hundreds of pounds to an account balance. Take a few minutes to check what level of interest your cash is earning and, if it’s not competitive, consider whether it’s worth switching to get your money working harder.
The more you have set aside in savings, the greater the potential boost you could receive. Having your savings in a Cash ISA up to the current limit of £20,000 a year (dropping to £12,000 a year for the under-65s from April 2027) also means keeping every penny of interest earned out of the tax authority’s clutches.
Mike Ambery, retirement savings director at Standard Life, says: “For borrowers, the hold may offer some reassurance given recent speculation around a possible rate hike, but the reality is borrowing costs are still staying higher for longer.
“Around 1.8 million fixed-rate mortgages are due to come to an end this year, with roughly one million of those coming off low-interest deals taken out before rates began rising in 2022. For many, that means a significant jump in monthly repayments, so anyone approaching the end of a deal should plan ahead and explore their options early.”
Ambery adds: “For savers, rates staying higher for longer can support returns on cash, but inflation means headline rates do not tell the full story.
“Cash has an important role for short-term needs and emergency savings, but for those saving for the longer term, investing through vehicles such as pensions and ISAs may offer greater potential for real returns over time, allowing savings to benefit from compound investment growth and tax relief.”
The next Bank of England Bank Rate decision is on 30 July 2026.
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