Oxford Economics sees Bank Rate held at 3.75% at next week’s MPC meeting.
Oxford Economics expects the Bank of England’s Monetary Policy Committee (MPC) to keep Bank Rate unchanged at 3.75% at its meeting next week, arguing that the war in the Middle East has made an immediate easing move less likely.
“The duration and severity of the energy price shock caused by the war in the Middle East is highly uncertain,” said Edward Allenby, senior economist at Oxford Economics. “We think the divided committee will be wary about the risks of making a policy error and is likely to err on the side of caution for now.”
The global advisory firm said minutes of the February MPC meeting had left the impression that a cut was plausible within the next two meetings. Since then, the escalation in the region has pushed oil and gas futures higher, particularly in shorter-dated contracts, and markets are now treating a March reduction as close to impossible.
For mortgage lenders and brokers, the key question is whether the rise in wholesale energy costs becomes a brief spike or a longer disruption that feeds into inflation and rate expectations. Oxford Economics noted early signs that higher oil prices are already showing up at the petrol pump. It added that the impact of higher European gas prices on household bills is likely to be felt later, with the Ofgem price-cap process typically passing through changes on a quarterly timetable.
Source: Citi/YouGov survey of inflation expectations
Michael Saunders (pictured right), senior economic advisor at Oxford Economics, argued that the MPC may be less willing than in the past to “look through” an energy-driven inflation bump, because inflation expectations remain above pre-pandemic norms and could be vulnerable to another shock.
“The old mantra that central banks look through energy price shocks no longer applies,” Saunders said. “Recent experience has shown that inflation expectations are not as well anchored as central banks had hoped. Hence, energy price shocks can create persistent inflation unless checked by monetary policy.”
Oxford Economics also pointed to the committee’s narrow votes in recent meetings, suggesting the bar for a shift towards holding rates for longer is relatively low when new inflation risks emerge. With the size and duration of the energy shock unclear, it expects policymakers to avoid strong signals about the next move and to emphasise flexibility.
A Mortgage Introducer poll currently points to a cautious outlook among readers, with the majority saying they do not expect any Bank of England rate cuts in 2026, while about a third anticipate only a single reduction. Readers can still take part in the poll before the end of the week.
Oxford Economics still sees a path back to cuts later in the spring if commodity prices retreat and the inflation outlook improves. It said the MPC could resume rate reductions in April or June if the shock fades. If disruption persists or widens, however, it expects a longer pause, with the committee unlikely to support fresh rate rises unless inflation expectations jump sharply.
For the mortgage market, the near-term effect is likely to be felt through swap rates and lender pricing, as expectations of an early cut are pushed out. Brokers may therefore see product withdrawals and repricing risk increase around major geopolitical and inflation data points, even if Bank Rate itself is unchanged.
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