The Bank of England's monetary policy committee (MPC) has held the base rate at 3.75% as it weighed geopolitical risks and March's uptick in inflation.
The vote by the nine-member MPC to keep interest rates unchanged was split eight to one, with the Bank’s chief economist Huw Pill voting for a hike to 4%.
The Bank of England has lowered interest rates six times since mid-2024, with the market largely expecting further cuts this year prior to the US-Israeli war on Iran, which began on 28 February 2026.
The Bank noted that the war in the Middle East – which has resulted in the effective closure of the Strait of Hormuz – has disrupted the transportation and supply of oil, raising its price and pushing up households’ motor fuel costs.
“We expect utility bills to increase as well,” the committee said.
The Bank also said it expects inflation to increase above 3.3% later this year.
Ed Hutchings, head of rates at Aviva Investors, said: “Today’s decision to keep the rate unchanged was fully expected but going forward it’s clear there are a lot of concerns amongst MPC members that hikes could well be needed.
“Since the start of the Iranian conflict the economic data has largely held up, yet with inflation expectations on the rise and the potential to be cemented further, it’s more likely hikes will be coming, even despite the growth outlook being somewhat of a worry.”
Michael Browne, global investment strategic at Franklin Templeton Institute, warned that the MPC “has a bias for acting slowly”, as was seen in 2022, when it was widely criticised for reacting too slowly to both rising inflation and the risks stemming from Russia’s invasion of Ukraine.
Browne said today there is a similar threat level, pointing to rising oil prices, a weakening labour market and gilt markets selling off.
“By not raising rates, the MPC is sending a message that is tolerant of inflation, as in 2022,” he said.
“It may have been too much to ask for the committee to go from almost cutting rates to raising rates in just two meetings, but the markets need assurance that the UK’s inflationary trajectory is sound and that lessons were learned from 2022 and that any change of political leadership is not a risk.”
Markets are now pricing in a first rate hike in July and a further hike later in the year.
However, when markets have doubt, they tend to be unforgiving, Browne warned, noting that gilts, sterling and mid-cap equities might come under pressure.
The MPC said: “We are monitoring the situation very closely; whatever happens, we’ll make sure that inflation gets back to the target [2%] in the medium term.”