Emma Wall, Chief Investment Strategist, Hargreaves Lansdown: "As expected, the Bank of England Monetary Policy Committee has held rates at 3.75%. The market had priced in a hold today, so reaction is muted. Committee members were unanimous with their cautious outlook in the face of the market uncertainty - with all members voting to hold rates. In the past few weeks, the market has gone from pricing in two cuts through 2026, to one rate hike, to one quarter point cut to, again today, an expectation that rates will rise later this year. These swings are understandable - the price of oil is dominating asset pricing and fear of an inflation spike is driving bond markets. However, we think these fears may be overblown. Comparisons with the interest rate hikes post Russia's invasion of Ukraine are not comparing apples with apples - rates are already elevated today, then they were at record lows, near 0%. As such, we think that while the conflict remains at elevated levels, the ECB, BoE and Fed are likely to hold rates at current levels, but the downward trajectory will continue once the war is resolved. The Bank of England Governor Andrew Bailey did leave the door open to raising rates on the outside chance the war causes prolonged and stubborn inflation in his statement, reminding consumers and corporates alike that the UK's inflation target is 2%."
David Rees, Head of Global Economics, Schroders said: "The Bank shelved its planned rate cut at today’s meeting as surging energy prices threaten to reignite inflation. Much will now depend on how high energy prices go, and for how long they remain elevated. 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. A relatively brief spike in commodity prices could still allow inflation to subside by the summer and bring rate cuts back onto the agenda later this year. However, with events in the Middle East seeming to get worse, there is a clear risk an extended price shock will keep inflation above target for the foreseeable future, squeeze real incomes, and push the economy into stagflation. That would block further rate cuts and could even bring hikes back into play if wage growth accelerates again."
Adam Gillespie, Partner at XPS Group: Today's announcement will only have a minimal impact on Defined Benefit (DB) pension schemes because funding positions are driven primarily by long-term gilt yields rather than the Bank Rate itself. In reality, long-term UK interest rate and inflation expectations have already shifted materially higher this month. The gilt market has not been waiting for Threadneedle Street. Most schemes are well insulated from today’s decision with aggregate DB surpluses still well above £200bn - a wall of financial resilience built up over several years of elevated yields. In this high funding, high-rate environment, there are two clear priorities for trustees and sponsors right now. In the short term, without regular recalibration, schemes risk their liability hedges slipping out of alignment and their hard-earned financial buffers being eroded. As well as recent upticks in rates and inflation, structural shifts in the gilt market are creating headwinds for schemes' protection strategies. Further gilt market volatility is to be expected with demand falling from the gilt market's most reliable customer, and the United Kingdom Debt Management Office changing supply. Today is another reminder for trustees and sponsors to keep their hedging strategies under active review and consider ways to strengthen their resilience to an uncertain future. In the longer term, trustee and sponsor focus should be on making the most of healthy surplus positions. With the Pension Schemes Bill progressing through Parliament and surplus access regulations expected later this year, the current financial environment offers real opportunities to benefit members, trustees and sponsors.
Mike Ambery, Retirement Savings Director at Standard Life plc said: “Today’s decision to hold interest rates at 3.75% reflects the Bank of England’s caution in the face of growing global uncertainty. With conflict in the Middle East driving a sharp rise in oil prices, the key question now is how far this feeds through into energy bills and wider inflation. Against this backdrop, a pause is unsurprising. Only weeks ago, markets were increasingly confident that inflation was on a downward path and that further rate cuts could follow. However, the escalation of tensions involving Iran has clouded that outlook, raising the risk that inflation proves more persistent. As higher wholesale costs filter through to households, the Bank is likely to remain measured and gradual in its approach when cuts do begin. For savers, a higher-for-longer rate environment can offer some support - particularly for those holding cash. However, with inflation risks building, there is a real danger that the value of those savings is eroded in real terms over time. Those saving for the long term should consider tax-efficient options such as pensions and Stocks and Shares ISAs to help their money keep pace with rising prices. For borrowers, this decision signals that pressure on household finances may persist. Those on variable or tracker mortgages - or nearing the end of a fixed-rate deal - could face elevated borrowing costs for longer, making it essential to review options early and plan ahead.”
Chris Arcari, Head of Capital Markets, Hymans Robertson said: “The escalation in the Middle East and its impact on oil and gas supplies have driven a sharp repricing in markets. Having previously expected two 25-basis-point rate cuts in 2026, investors are now entertaining the possibility of rate hikes. But while higher energy prices are likely to push inflation back above 3% in the second half of 2026, central banks typically look through supply-side shocks. These tend to be temporary, are largely outside the reach of monetary policy and usually weigh on growth. That said, given the post-2022 experience – when an energy shock led to a prolonged inflation surge – the Bank of England (BoE) will be alert to the risk of second-round effects and a de-anchoring of inflation expectations. Today’s conditions differ materially from 2022. Growth is weaker, labour markets are loosening and inflation was already trending lower before the conflict. Interest rates and yields are also significantly higher and mildly restrictive. Nonetheless, recent developments could delay the BoE’s response as it assesses the impact of higher energy prices on both growth and inflation – highlighting the challenging trade-off between downside growth risks and upside inflation risks. A shift to rate hikes, as markets are now pricing in, looks unlikely in the near term. The Monetary Policy Committee was inclined to cut rates to support activity before the shock, and tightening policy into a weakening labour market – with unemployment at a four-year high of 5.2% and vacancies falling – risks inflation undershooting after the shock fades. Therefore, any move towards hikes would require clear evidence of second-round effects and further deterioration in inflation expectations.”
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