Rate-setters have warned that inflation could rise again, putting renewed pressure on household budgets.

Speaking about the war in Iran, the Bank of England’s Governor Andrew Bailey said: “Inflation has fallen faster than we’d expected.

“But the conflict in the Middle East continues to mean high and volatile energy prices.

“That will cause inflation to rise again later this year.”

Inflation concerns

His comments followed the announcement that the Bank’s rate-setters had opted to hold interest rates at 3.75% for a fifth time in a row.​

There was an expectation at the beginning of this year that interest rates would have increased by this time.

However, inflation is above the Bank’s 2% target set by the Government, and currently stands at 2.6%.

Three of the nine rate-setting members of the Bank’s Monetary Policy Committee (MPC) voted for a hike.

The conflict in the Middle East continues to mean high and volatile energy prices.”

Hina Bhudia, Partner of Knight Frank Finance, explained: “The MPC has turned a little more hawkish since the previous meeting, with three members voting to raise rates, which is unsurprising given the escalation of hostilities in the Middle East.

“Mortgage lenders have already repriced higher to account for this, so borrowers should enjoy some stability in the short term.

“That said, the outlook for mortgage rates over the coming months remains highly uncertain.

“Much will depend on developments in the Middle East and whether higher energy prices feed through into broader inflation at a time when demand across the economy remains relatively subdued.

“Many lenders are behind their targets for the year and will pass on to borrowers any reduction in funding costs as soon as they can.”