United Kingdom: Central Bank holds rates in March
Latest decision: In mid-March, the Central Bank voted to keep the bank rate at 3.75%, following cuts of 150 basis points from August 2024 to December 2025.
Bank takes cautious approach in light of high global energy prices: The Bank decided to take a wait-and-see approach to evaluate the impact of past monetary easing, in a context of inflation above the 2.0% target and upside risks to inflation stemming from the recent surge in energy prices linked to the Iran war.
Guidance turns open-ended: The Central Bank said it “stands ready to act as necessary” to meet the target, replacing the previous meeting’s guidance that the bank rate was “likely to be reduced further”. While our Consensus is currently for monetary easing later this year, panelists are likely to revise their interest rate forecasts upwards in coming weeks.
Panelist insight: Goldman Sachs analysts said:
“Our baseline forecasts assume a gradual resumption of flows through the Strait of Hormuz and we consequently expect the MPC to remain on hold at the upcoming meetings. But a near-term hike is now a significant risk if the energy shock continues to build. We now think that the Committee will remain on hold for longer and maintain Bank Rate at 3.75% throughout 2026 (versus quarterly cuts from July previously).”
ING’s James Smith said:
“The Bank of England’s unquestionably hawkish decision to hold rates has opened the door to future hikes if energy prices stay elevated. Yet we’d be careful in drawing clear signals from today’s move, which also floated the possibility of faster rate cuts. Under ING’s base case energy scenario, we think the most likely path forward is a prolonged pause.”