UK interest rates held at 3.75% as Iran war scuppers hopes of a cut

UK interest rates to be decided

Good afternoon, and welcome to rolling coverage ahead of the latest UK interest rates decision from the Bank of England’s Monetary Policy Committee (MPC), which will be announced tomorrow.

There is plenty of uncertainty ahead of the announcement. Three weeks ago, most experts were predicting a cut, especially given how narrowly the committee voted to hold UK interest rates at 3.75% last time it met.

But the conflict in the Middle East has thrown these forecasts up in the air. Given the unpredictable impact of the war on inflation, many experts now believe the MPC will wait to see what happens and hold rates – while some even believe it could raise interest rates in order to stave off any resurgent inflation.

Whatever happens, we will bring you rolling views and analysis before the decision, breaking news as it happens, and reaction and analysis afterwards.

When does the MPC meet to decide UK interest rates?

The MPC meets today – possibly as you’re reading this. But the results of its meeting are announced tomorrow.

The announcement will include details of what each of the nine members of the MPC felt about the next UK interest rate decision, as well as how each voted.

The announcement will be made at 12pm on Thursday 19 March – make sure you join us live as we announce the result.

When did UK interest rates start falling?

Interest rates in the UK have been on a downward trajectory for some time now, with the Bank of England starting this most recent cutting cycle in August 2024.

Before rates started being cut, the base rate rose from 0.25% at the tail end of 2021 to 5.25% in summer 2023 as the Bank responded to soaring inflation in the wake of the 2022 energy crisis.

Since the summer of 2024, rates have been falling slowly and gradually, with the MPC’s watchwords for much of this time being “gradual and careful”.

A total of six rate cuts have been made since, bringing the base rate to 3.75% at the MPC’s December 2025 meeting.

At the following meeting in February 2026, the committee made an overt signal that it wanted to cut rates further as inflation was forecast to return to the 2% target quickly, saying: “On the basis of the current evidence, Bank Rate is likely to be reduced further.”

However, now war in Iran is threatening the UK economy, it seems hopes of a further reduction on Thursday are far-fetched.

Will tomorrow’s interest rate decision finally unite the MPC?

Members of the MPC have been especially divided in recent meetings, with a much larger split appearing between the committee’s doves and hawks.

In four of the five most recent meetings, votes to cut or hold rates have been split 5-4, leaving Bank of England governor Andrew Bailey to cast the deciding vote.

A main source of division at these meetings was the UK inflation outlook, with doves making the case that disinflation was going in the right direction, justifying further interest rates cues.

Meanwhile, more hawkish members treated the inflation statistics with more caution, arguing that disinflation needed to make more progress before a cut could be made.

But with the UK potentially set to experience an economic shock due to conflict in the Middle East, a clearer consensus may emerge at the March meeting, with most economists expecting the MPC to hold rates where they are.

Bank of England expected to hold UK interest rates at 3.75%

The consensus expectation ahead of tomorrow’s UK interest rate announcement is that the MPC will hold rates where they are, at 3.75%.

This is largely because of the potential fallout from the oil price rises that have occurred since conflict broke out in the Middle East. Oil prices rose to close to $110 per barrel earlier today.

“The global economic landscape has become increasingly complex in recent months, with geopolitical tensions impacting financial markets and consumer confidence,” said  Aaron Shinwell, chief lending officer at Nottingham Building Society. “While interest rates had been on a gradual downward trajectory, the ongoing situation in various regions has introduced a high degree of uncertainty.

"The expectation is that the Bank of England will maintain the current base rate of 3.75% this week,” Shinwell continued. “However, the path forward is far less clear beyond that.”

UK interest rate-setters: who is on the MPC?

The Monetary Policy Committee has nine members, and between them they decide UK interest rates every six weeks.

They are:

• Andrew Bailey, governor of the Bank of England;
• Sarah Breeden, deputy governor, financial stability;
• Clare Lombardelli, deputy governor, monetary policy;
• Huw Pill, chief economist;
• Dave Ramsden, deputy governor, markets and banking;
• Four ‘external members’ that are appointed directly by the government: Swati Dhingra, Megan Greene, Catherine Mann and Alan Taylor.

In theory, this gives the MPC a well-rounded balance of expertise and perspectives.

What are the chances of a UK interest rate hike?

There have been suggestions that instead of holding interest rates, the MPC will vote to hike them.

The argument in support of a hike is based on the view that the war in Iran will lead to a resurgence of the high inflation the UK experienced in 2022. The MPC should therefore, they say, hike rates as a precaution to guard against returning inflation.

There is some merit to this view. Most forecasters think a prolonged war in Iran will lead to increased inflation in the UK – particularly through heightened energy prices.

However, in the view of Sanjay Raja, chief UK economist at Deutsche Bank, energy inflation alone is probably not enough to provoke a hawkish pivot.

The present situation is not the same as the 2022 energy crisis, he says. Then, the economy was on the rise, fiscal policy was loose, the labour market was tight, and monetary policy was accommodative.

“Today,” Raja said, “the world has changed. Fiscal policy is tightening rapidly. The UK is set to see the biggest fiscal consolidation (on paper at least) among G7 countries. Monetary policy... remains restrictive at 3.75%. Growth has stuttered to a near standstill.”

Raja added that these changes in how the economy operates mean that “while the rise in inflation (and inflation expectations) may curb further rate cuts, the MPC may be more minded to wait on the sidelines as the dust settles on the Iran conflict.”

Over to you – what’s next for UK interest rates?

We’re going to pause live reporting here for this evening, but don’t worry - we’ll resume tomorrow morning to bring you more previews and analysis ahead of the MPC’s UK interest rates decision announcement.

In the meantime, have your say: what do you think the MPC will decide? Let us know in our poll.

UK interest rates recap

Good morning, and welcome back to live coverage ahead of the announcement of the latest UK interest rate decision from the Bank of England’s Monetary Policy Committee (MPC).

Here’s a quick recap of the key details:

• The decision will be announced today at midday.
• Most experts previously expected the MPC to cut rates from 3.75%; however, the outbreak of the war in the Middle East has made this unlikely.
• While some have suggested the MPC could instead hike rates, most experts think the MPC will hold rates at their current level, enabling them to wait and see what happens with the fallout from the conflict.

We’ll bring you further previews and analysis this morning, as well as live coverage of and reaction to the decision’s announcement.

ONS shows labour market weakness ahead of UK interest rates announcement

Unemployment held steady at 5.2% in the three months to January, remaining at a five-year high, new data from the Office for National Statistics (ONS) shows.

Meanwhile, wage growth slowed in the same period to 3.8% for regular earnings (excluding bonuses) and 3.9% for total earnings (including bonuses).

While in calmer times this would be a good indicator that the Bank of England is able to cut interest rates without stoking inflation, the war in Iran will overshadow the data.

Rob Morgan, chief investment analyst at Charles Stanley, said any notion of cutting rates because of the softer labour market has been “rapidly extinguished by a surge in energy prices” that could potentially keep inflation north of 2.5%.

“The Bank of England is now very much stuck between a rock and a hard place," Morgan continued. “On the one hand, growth is at a crawl and there is slack in the labour market, but on the other a fresh pulse of inflation is set to hit households and businesses.

“In other words, the UK is in danger of experiencing the worst of both worlds: above-target price rises and an economy teetering on the brink of recession – “stagflation” in economists’ parlance – and there aren’t many levers left to pull to prevent it.”

Near-unanimous decision to hold UK interest rates expected

Despite recent division among members of the MPC, today’s interest rate decision is expected to pass almost unanimously, experts say.

Matthew Ryan, head of market strategy at financial services firm Ebury, said: “The bank will no doubt say that the Iran war and spike in oil prices have introduced significant upside risks to UK inflation, although it will be too soon for the bank to offer any real forward guidance.”

Ryan expects a motion to keep rates at 3.75% will pass by 8-1 or 7-2 as the MPC completes a hawkish pivot with minimal dissent.

Though markets are pricing in a 25 basis point hike by the end of 2026, Ryan said this view is “excessive for now, as it is not at all clear whether the supply side shock will be enough to trigger wage pressures of a de-anchoring in inflation expectations.”

He added that, as recent domestic economic news has not been overly favourable – including labour market data – the MPC “will not want to rule out the possibility of further cuts down the road should the Iran war resolve itself faster than currently anticipated.”

UK wage growth at lowest level in five years

UK wages grew at their slowest pace for five years in January, according to this morning’s ONS figures.

“Regular wage growth is at its lowest rate in more than five years, with pay growth in both the private and public sectors continuing to ease,” said Liz McKeown, director of economic statistics at the ONS.

Despite the worsening economic conditions, the MPC is unlikely to announce a cut to UK interest rates, without knowing how severe the inflationary impact of the Middle East war could become.

UK interest rates decision to be announced imminently

The MPC’s interest rates decision will be published at 12pm, and we will be covering the result along with reactions and expert analysis.

BREAKING: UK interest rates held at 3.75%

Interest rates have been held at 3.75%, in line with most expectations as war in Iran scuppered hopes of a rate cut.

More detail will be revealed in the minutes of the MPC’s interest rates meeting, so stay tuned as we digest the data.

MPC voted unanimously to hold UK interest rates at 3.75%

All nine members of the MPC voted to keep rates at 3.75%, as conflict in the Middle East led to a rare unanimous consensus among all members of the committee.

Some experts had forecast rate-setters to pass the motion by 8-1 or 7-2, but it seems the potential inflationary consequences of the war in Iran swayed even the most dovish MPC members to hold.

Middle East conflict the driving factor behind UK interest rate hold

In the summary to its interest rates decision, the MPC acknowledged that conflict in the Middle East has led to a “significant increase” in energy and other commodity prices.

The conflict jeopardises previous inflation forecasts, including the Bank’s own, which expected price growth to return to close to 2% this quarter. They now expect inflation to be higher in the near-term.

The MPC added that the longer energy prices remain high, the greater the inflationary risk to the UK.

The committee said it is also “also assessing the implications for inflation of the weakening in economic activity that is likely to result from higher energy costs.

“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.”

UK interest rates still at their lowest since February 2023

Despite rates being held, they are still at their lowest level in years.

The last time interest rates were below 3.75% was more than three years ago in February 2023.

We may have to wait some time to see interest rates fall further, as the MPC contends with the economic shock from the Iran war.

No UK interest rate cut likely until Middle East picture clears

Given that the energy price shock that followed the Ukraine war is still fresh in mind for central banks, it seems as though the Bank of England will be cautious about cutting UK interest rates until the fallout is clearer.

“The Bank shelved its planned rate cut at today’s meeting as surging energy prices threaten to reignite inflation,” said David Rees, head of global economics at financial services firm Schroders.

“Much will now depend on how high energy prices go, and for how long they remain elevated,” Rees continued. “But the current levels of oil and gas prices are already enough to add around 1% to headline inflation in the coming months, while shortages of fertilisers could push food inflation higher later in the year.”

With the conflict worsening, though, Rees highlighted that there is an added risk of an extended price shock. If that transpires, it could keep inflation above target for the foreseeable future – squeezing real incomes and threatening to push the economy into stagflation.

MPC: Energy supply disruption expected even if conflict ends soon

In its latest meeting, the MPC discussed the outlook for global oil and gas prices, noting that there were “upside risks to oil and gas prices looking ahead.”

It added that even if the Iran war ends quickly, the energy supply would still “take time to recover”, pushing up prices.

The committee said: “Efforts to rebuild stocks, as well as greater awareness of vulnerabilities in the global energy network, could sustain higher oil and gas prices. Distributions implied by financial market options also suggested that upside risks to oil and gas prices had increased significantly, at least over the next few months.”

Energy price inflation could push CPI to 3.5% in Q3

Higher wholesale energy prices could push inflation up by as much as 0.75 percentage points in the third quarter of the year, the MPC said.

While consumers will be protected from heightened prices until the end of June, thanks to the Ofgem energy price cap, they could be hit by higher bills from July onwards if current wholesale conditions persist.

The minutes said: “Based on the oil and gas futures curves as of 16 March, Bank staff projections suggested that the direct contribution of energy prices to CPI inflation in 2026 Q3 would be around ¾ percentage points.”

This rise, taken together with an assumption that firms will pass on higher energy costs to consumer prices, is forecast to push inflation up to an average of 3.5% in the third quarter of 2026.

Next rate decision will react to developments in Iran war

The next interest rates decision, due on 30 April, is set to be a reaction to the scale of the economic shock resulting from the Iran war, the MPC meeting minutes indicate.

They showed members "agreed that developments over the next six weeks could shed light on the likely scale and duration of the conflict, as well as providing some early evidence on the likely propagation of the shock.”

If there is a larger shock that risks greater second-round inflationary effects through wage and price setting, the MPC would need to adopt “a more restrictive policy stance.”

Conversely, the MPC said if the shock is “very short-lived, or if there were to be a larger opening up of slack in the economy that was expected to reduce medium-term inflationary pressures” then monetary policy would need to be “less restrictive.”

They added: “The MPC would act as necessary to ensure the 2% target was met sustainably.”

UK interest rates recap

As a recap, here’s the main talking points following the latest MPC meeting:

• UK interest rates were held at 3.75%.
• Markets had priced in a rate cut ahead of the outbreak of the war in the Middle East, but oil price rises and their potential inflationary impact have prompted the MPC to pause.
• The decision was reached via a rare unanimous vote from the MPC’s nine members.
• The MPC has said that it will base its next interest rate decision (due 30 April) on what transpires in the conflict in the meantime, as well as developments in the UK economy.
• UK wages grew at their slowest pace for five years in January, according the latest ONS figures, exacerbating the dilemma the MPC faces.

What does the interest rates hold mean for savings rates?

Savers will be able to benefit from higher savings rates than they would have if the MPC had voted to cut rates.

Savings rates have been falling since the Bank of England started cutting rates in 2024, with top rates slowly disappearing from the market.

Had the MPC voted to cut rates today, as many expected before the Iran war erupted, savings account rates would have likely been cut too. But as rates have been held, we can expect savings rates to stay broadly where they are.

The top savings account on the market at the moment is Chase’s saver with boosted rate, which grows your cash at a rate of 4.5% for 12 months. After a year, the rate drops to 2.25%.

What does the interest rates decision mean for your mortgage?

Mortgage rates have been slowly creeping up this month as the market adjusts to the Iran war.

On 18 February the average mortgage rate was 4.91%. By 11 March, it crept up to an average of 5.04%. Then, as it became clear this war was not going to be as quick as many hoped, rates climbed to an average of 5.29% by 18 March.

That may be surprising considering the Bank of England has not hiked rates. But the way banks price mortgage deals is more complicated than just following the base rate and adding a couple percent on top.

Instead, lenders price their mortgage deals by anticipating what the Bank of England will do ahead of time. So, as almost everyone expected a cut before the conflict in the Middle East broke out, lenders priced their mortgages more competitively.

However, once it became clear that the UK economy will be negatively affected by the war, with inflation probably set to rise, lenders started betting that interest rates will be hiked in response.

That is why new mortgage deals are higher today despite rates being held at the same level they were in December.

Oxford Economics: UK interest rates could stay at 3.75% until late 2027

Interest rates could be held at 3.75% for the foreseeable future as the MPC will hunker down for a period of heightened inflation, according to new forecasts by advisory firm Oxford Economics.

The firm expects the MPC to keep interest rates where they are until well into 2027, with a cut potentially on the cards by the end of next year.

Its previous forecast saw rates falling throughout 2026 and early 2027 until they settled at around 3%.

The reason for such a dramatic revision is – you guessed it – the economic impact of the Iran war on the domestic economy.

In particular, Oxford Economics is concerned that global oil and natural gas prices will stay higher for longer than other forecasters think.

It expects Brent crude oil prices to average $113 a barrel in the second quarter of the year and the Ofgem energy price cap to rise by 19% in July. The consultancy thinks this will cause CPI to rise to just above 4% in the second half of 2026.

Andrew Goodwin, chief UK economist, said: “We think the most likely outcome is that the MPC settles into a long period of unchanged rates.

“If our oil and gas price assumptions are in the right ballpark, given the concerns about inflation expectations we think the committee will be reluctant to loosen policy again until three factors align: headline inflation has dropped back to the 2% target; there are signs that core inflation is under control; and the MPC is content that pay growth is close to a target-consistent pace. Under our baseline forecast, these conditions would only be satisfied in H2 2027.”

Thank you for following our coverage of today's base rate announcement. We're going to end our live reporting here, but keep an eye on the Moneyweek website and newsletters for further updates and analysis on the outlook for UK interest rates.