As the Bank of England held interest rates on Thursday, ITV News Economics Editor Joel Hills explained why and to what extent the war in the Middle East is hitting the British economy

With the war in Iran entering its fourth week, shockwaves have been sent through the global economy as oil prices have surged.

The conflict’s impact goes way beyond fuel and energy costs, with turmoil in financial markets also affecting people’s pensions and mortgage rates.

Earlier this week the Bank of England announced it was holding the interest rates at 3.75% earlier this week, rather than cutting them, as it attempted to work towards its target of bringing inflation to its 2% target.

The fallout in the mortgage market has not been “quite as dramatic” as after the mini-Budget of Liz Truss’ government in 2022, or during the Covid pandemic, according to financial information company Moneyfacts.

In part, it says this because “the mortgage market was in pretty rude health with a record number of available products going into this latest crisis”, it adds.

Here is a snapshot of the mortgage market as of Saturday, March 21, according to Moneyfacts:

Average two-year fix residential mortgages: Have risen from 4.83% at the start of March to 5.39% today. It’s highest since March 2025

Average five-year fix residential mortgages: Have risen from 4.95% at the start of March to 5.42% today. It’s highest since July 2024

Lowest rate on the market: 4.01% – this is up from 3.51% before the conflict in Iran began (excluding NI only deals)

Number of mortgage products withdrawn: Another 677 residential mortgage products were withdrawn from the market since the swap rate rose following the Bank of England’s base rate decision on Thursday.

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Around a fifth of available mortgage products have been pulled and rates have continued to climb at pace this week as lenders scramble to keep up with volatile swap rates,” said Adam French, head of consumer finance at Moneyfacts. “The combination of rising rates and falling choice is a direct response to the conflict in the Middle East which has dramatically shifted expectations around inflation and interest rates.“While a quicker resolution to the conflict could ease some of pressure on rates, the reality is that a more volatile world is a more expensive world.

“Even though the most competitive deals will remain below average, anyone looking to buy or remortgage this year needs to prepare for higher costs than previously expected.”

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