Today, the Bank of England announced the latest Bank Rate. The decision: they’re holding the Rate at 3.75%. The vote, decided upon by the Monetary Policy Committee, comes as global affairs begin to impact the UK economy.
The announcement says, “Conflict in the Middle East has caused a significant increase in global energy and other commodity prices, which will affect households’ fuel and utility prices and have indirect effects via businesses’ costs. Prior to this, there had been continued disinflation in domestic prices and wages. CPI inflation will be higher in the near term as a result of the new shock to the economy.”
How Much Can The Committee Actually Control?
Of course, there’s not much that monetary policy can do to influence what happens globally, but the goal is for the economic adjustment to maintain the 2% target in the most sustainable ways possible.
“The MPC is alert to the increased risk of domestic inflationary pressures through second-round effects in wage and price-setting, the risk of which will be greater the longer higher energy prices persist. The MPC is also assessing the implications for inflation of the weakening in economic activity that is likely to result from higher energy costs,” the announcement reassures.
It continues, “The Committee will continue to monitor closely the situation in the Middle East and its impact on global energy supply and energy prices. It stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium term.”
What Does This Mean For Today’s Economy?
So what does this mean? Victor Trokoudes, founder and CEO at Plum said:
“The MPC has held the base rate yet again at 3.75%, understandably acting with caution given the ongoing impact of the Middle East crisis and uncertainty about the outcome.” He added, “Base rate expectations have whipsawed since the start of military action.”
When it comes to inflation, it had really been easing before the conflict as 12 month CPI inflation went down to 3% in January from 3.4% in December. But this has since changed. From the energy prices in mid-March, the Bank expects CPI inflation to be at around 3.5% in March and 3% in Q2, which is different from the 2.1% that was previously expected.
Megan Greene from Committee, confirms all this by saying, “The risk of inflation persistence has risen, perhaps significantly, in light of the negative supply shock from the war in the Middle East. Pre-conflict data showed a mixed picture for the underlying disinflationary process: the Agents revised expected average pay settlements up to 3.6% in 2026; but households’ inflation expectations, while still elevated, had dropped significantly.
“With this new energy shock, preliminary Bank staff estimates suggest CPI inflation will rise above 3% for much of this year, above the threshold at which households are more sensitive to inflation outturns in their expectation setting.”
Trokoudes also said, “Prior to the operation, it was broadly expected that there would be two rate cuts this year, bringing the base rate to 3.25%. And there was a high chance of one of those cuts coming this month.”
Energy prices explain the change; the Bank reported Brent crude at over $100 per barrel ahead of the meeting, around 60% higher than in February. European gas prices rose above €50 per MWh.
Growth is weak, still. GDP rose 0.1% in Q4 2025 and monthly GDP was flat in January. The unemployment rate was 5.2% in the 3 coming months towards January.
Even so, Governor Andrew Bailey said, “Monetary policy cannot reverse this shock to supply. Its resolution depends on action taken at its source to restore the safe passage of shipping through the Strait of Hormuz. Monetary policy must, however, respond to the risk of a more persistent effect on UK CPI inflation.” That caution explains the hold, even as activity slows.
What Does This Mean For Consumers And Businesses?
The decision, for households, means borrowing costs are not going down. Trokoudes said, “Today, we saw the Bank of England interest rate stay the same at 3.75%, in line with market expectations.” Inflation at 3% means “everyday goods have continued to increase in price, albeit at a slightly lower pace.”
Energy costs are expected to impact bills in the coming months. If wholesale prices stay high, they are likely to result in a higher Ofgem price cap from July.
Mortgage borrowers are already seeing higher pricing. According to Moneyfacts, the average two year fixed rate across the market has reached 5.2%.
Trokoudes said, “Holding the base rate at 3.75% will also be disappointing news for variable mortgage holders who will have been hoping for multiple rate cuts in 2026 to reduce their monthly outgoings.”
He added, “If you are looking to get a new fixed-rate mortgage, it may be worth locking in an affordable offer now in case rates rise further and you can do this typically up to six months in advance.”
Savers are in a stronger position, it seems. Trokoudes said, “Many are currently offering rates well above the base rate, with offers in excess of 4.5% available. That’s a whole 75bps higher than the current BoE rate.”
In the run up to the end of the tax year, competitive Cash ISA rates may appeal to those looking to secure tax free returns on their savings.
