The Bank of England has held interest rates at 3.75 per cent as conflict in the Middle East drives up oil and gas prices, fuelling fears of a fresh surge in inflation. The decision comes as millions of borrowers hoping for cheaper mortgages face continued high borrowing costs, with financial markets now expecting possible rate increases in the coming months.

Rising energy prices following airstrikes involving the United States and Iran have raised concerns that inflation could climb as high as 5 per cent. Economists warn that if price pressures intensify, the central bank may be forced to raise rates further despite signs of economic weakness, including unemployment at a five-year high.

Mortgage rates have already climbed, with average two-year and five-year fixed deals reaching their highest levels in more than a year. Lenders have withdrawn many of the lowest-rate offers, sharply increasing costs for households. The Bank of England now faces the challenge of containing inflation without pushing the fragile economy into recession.