Bank of England’s latest decision on base rate

The Bank of England’s Monetary Policy Committee (MPC) voted unanimously to maintain the base rate at 3.75% at its March meeting⁽¹⁾.

In its accompanying commentary, the MPC said conflict in the Middle East has caused a significant increase in global energy and other commodity prices with implications for household fuel and utility prices, as well as indirect effects via businesses’ costs.

‘Prior to this, there had been continued disinflation in domestic prices and wages. CPI inflation will be higher in the near term as a result of the new shock to the economy,’ the committee added.

‘Monetary policy cannot influence global energy prices but aims to ensure that the economic adjustment to them occurs in a way that achieves the 2% target sustainably. The MPC is alert to the increased risk of domestic inflationary pressures through second-round effects in wage and price-setting, the risk of which will be greater the longer higher energy prices persist.’

In discussions, the MPC acknowledged the impact of shipping disruption in the Strait of Hormuz and the level and volatility of energy prices.

It noted that measures such as the release of strategic oil reserves may not fully offset supply disruption and that a recovery in energy supply could take time, even in the event of a short-lived conflict.

Dr David Crosthwaite, chief economist at BCIS, said: ‘With inflation expected to rise, the potential for a hike in the base rate is possible in the next round leaving the cost of borrowing elevated. This will likely stall investment in fixed capital.

‘In other words, the construction sector will see reduced investment in new projects. The cost of energy has increased significantly as a result of the conflict and it is expected to feed through to higher costs for those building materials that are energy-intensive in their production process.

‘For construction, the likely consequences of the conflict could include projects stalling, reduced workloads, increased input costs and a potential decrease in tender prices. The severity of any impacts will be conditional on the length of the conflict.’

According to the committee, overall financial conditions have tightened since its last report and the conflict has generally led to a deterioration in risk sentiment in financial markets.

Considering current economic conditions in the UK, the committee said the conflict has made the short-term outlook for inflation uncertain and that a return to 2% CPI inflation would be delayed.

Looking forward, committee members said developments in the coming weeks may provide early evidence on the likely propagation of the shock. A larger or more protracted shock, which risked greater second-round effects in wage and price setting, would require a more restrictive policy stance.

The MPC’s next vote will be published on Thursday 30 April 2026.

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^{(1) Bank of England – Bank Rate maintained at 3.75% – March 2026 Monetary Policy Summary and Minutes – here}