Rate call reflects caution over oil-driven inflation shock from the Middle East conflict
The Bank of England has left its base interest rate at 3.75%, in line with market expectations at today’s monetary policy meeting.
Voting unanimously, policymakers sought to balance easing domestic inflation pressures against a renewed external risk: higher energy costs linked to the escalating geopolitical tensions in the Middle East, which have driven oil prices sharply higher and complicated the near-term outlook for rate cuts.
The Monetary Policy Committee voted unanimously to keep the interest rate at 3.75%.
— Bank of England (@bankofengland) March 19, 2026
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At its previous meeting, the Monetary Policy Committee (MPC) voted to also keep rates at 3.75%, with four members favouring a quarter-point cut to 3.5%. Rates were last cut in December 2025, bringing the base interest rate to its lowest level in almost three years, and further reductions were expected through 2026.
Until a few weeks ago, a cut in March or April looked likely, with another pencilled in for later in the summer. Those forecasts have been unsettled by events in the Middle East, which have increased uncertainty over the direction of rates. The UK is also dealing with stubborn inflation and rising unemployment.
“A hold at 3.75% would not come as a surprise,” said industry commentator Nicholas Mendes of London broker John Charcol. “It would reflect a Bank of England that has been forced into a more cautious stance by events over the past few weeks.
“Before the recent escalation in the Middle East, another cut looked increasingly likely. Inflation had been moving in the right direction, wage growth was easing, and the labour market had softened enough to support the case for a further reduction. That backdrop has changed.
“The rise in oil and energy prices has created a fresh inflation risk the Bank will not want to wave through. Monetary policy cannot stop an external supply shock, but it can try to stop it feeding into inflation expectations and broader pricing across the economy.”
Mendes pointed out that the hold should not be read as a change in long-term direction. “It looks more like a pause while policymakers judge whether this is a short-lived disruption or something that starts to embed itself more widely,” he said.
“The decision itself is unlikely to move markets much. The more meaningful signal will come from the Governor’s tone, the wording of the statement, and whether the Bank still leaves the door open to cuts later in the year once the inflation outlook becomes clearer.”
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