Interest rates hold at 3.75% – industry reaction

The Bank of England has announced that it has held interest rates at 3.75% with the Monetary Policy Committee (MPC) voting unanimously to keep interest rates on hold.

The Bank says that a “shock to the economy” sparked by the war in the Middle East could push inflation as high as 3.5% later this yeart, with rate-setters deciding a pause will give them time to consider the scale of the fallout.

Commenting on the decision, James Burgess, Head of Commercial at Atradius said “Stagnant interest rates aren’t good news – it just prolongs the squeeze. As we approach the new financial year businesses are facing a crunch of policy-driven tax increases, higher employment costs, and changes to business rates. Our data shows that claims for failed or late invoice payments are up 22% since December, which is often an early warning sign of trouble ahead.

“Businesses that actively protect liquidity, strengthen supply chains and safeguard their receivables will be far better placed to weather the shocks still working through the economy.

“We’d urge all businesses to understand their business resilience score so they can be better prepared to weather expected and – as is seemingly more common in the current climate – unexpected financial shocks.”

Mike Randall, CEO, Simply Asset Finance: said “The Bank of England’s decision to hold interest rates offers businesses some short-term stability, but underlines the uncertain outlook for the months ahead.

“For SMEs, the ambition to grow hasn’t gone away, but a volatile global backdrop and unclear rate path are making investment decisions harder to time.

“Against this backdrop, businesses will need both clarity and flexibility. Unlocking business potential in the next few months will be determined by policymakers’ and the industry’s ability to ensure SMEs have the confidence and financial support they need to keep moving forward.”

Theo Chatha, CFO and MD of Specialist Finance, Bibby Financial Services said “Today’s interest rate hold will surprise no one watching the markets – but just weeks ago, a cut felt all but certain. The Iran war changed that almost overnight: oil prices spiked, trade routes tightened, and sterling weakened sharply. For businesses trading internationally, that kind of volatility isn’t abstract – ​​it hits margins directly through higher borrowing costs and currency swings.

“Trying to predict what comes next right now is a losing game. The businesses demonstrating real resilience are the ones focused on what they can control: locking in the FX rates they need to protect their margins. A proactive FX strategy isn’t a nice-to-have right now. It’s essential.”

Alpesh Paleja, Deputy Chief Economist, CBI, said “Only a few weeks ago, a rate cut in March looked like a done deal. But the outlook facing the Bank of England has shifted materially since then.

“Higher global energy prices and renewed supply bottlenecks – stemming from conflict in the Middle East – are likely to push inflation higher in the near term. That could delay a return to the 2% target by almost a year, after the Bank had previously expected inflation to reach that point this summer. It will also weigh somewhat on economic growth.

“Against that backdrop, expectations had already shifted towards rates remaining on hold as the MPC adopts a more cautious “wait-and-see” approach. The key question now is what comes next. The Committee may be less willing to “look through” another temporary energy shock, particularly while the hangover of the last spike is still visible in stickier measures of domestic inflation.

“Much will depend on how the conflict evolves: whether energy prices rise further, how long any increases last, and – crucially – whether households’ inflation expectations begin to move materially higher. With so much still uncertain, the MPC may remain in a holding pattern for at least the next few months, even though there is still a broad inclination within the Committee to lower rates over time.”

Suren Thiru, ICAEW Chief Economist, said “Holding interest rates will come as a bitter blow to those home buyers grappling with the striking hike in mortgage rates since the Iran war started and businesses toiling against elevated cost pressures.

“The vote split suggests that this was a hawkish rate hold, highlighting how recent divisions within the committee have faded for now amid a wave of new inflation risks and uncertainty caused by this Middle East conflict.

“While policymakers will want to avoid a repeat of 2022 when it raised rates too late to stop inflation surging, following Russia’s invasion of Ukraine, they should be careful not to overcorrect for past mistakes as this time policy is more restrictive and inflation is lower, leaving rate-setters favourably positioned to cope with this crisis.

“While another interest rate cut remains possible if the Iran war ends quickly, with skyrocketing oil and gas prices locking in an imminent inflation spike, the chances of further policy loosening this year is rapidly receding.”

Neil Rudge, Chief Banking Officer, Shawbrook, said “The decision to hold rates will be a setback for SMEs, particularly given expectations that we were entering a cutting cycle. Recent geopolitical instability has shifted the outlook and, with it, the prospect of near-term relief on borrowing costs. For businesses already managing tight margins, a prolonged period of higher rates, alongside rising energy costs and ongoing supply chain disruption, creates a more challenging operating environment.”

Anna Leach, Chief Economist at the Institute of Directors, said “The outbreak of conflict in the Middle East has re-framed the inflation landscape, both globally and in the UK. At this point, oil prices are closing on their 2022 peak, while gas prices are at around a quarter of their level at that time. With such significant rises and market volatility, it’s no surprise to see a unanimous vote from the MPC for a rate hold while they assess the situation.

“The growth and inflationary impacts from the conflict come down to the significance of the energy supply and other market disruptions and their duration. Ahead of the attack on Qatar’s gas field, the IEA had already described the energy supply disruption as “unprecedented” making it inevitably difficult for forecasts of impact to be precise. Nonetheless, the Bank expect inflation to be up to 1.5% points higher by Q3 than they predicted in February, reaching 3.5%.

“Ideally the MPC would look through this type of cost shock. But with household and business expectations for inflation remaining stubbornly elevated, risks remain from higher inflation becoming imbedded in the system. Arguably the risks from second-round inflationary effects this time are lower. The economy is markedly weaker compared with the outset of the Ukraine war, with unemployment higher and private sector wage growth closing on 3%. These are not strong conditions for either wage growth to track higher or for businesses to be able to pass through costs via prices.”

Clare Stinton, Senior Personal Finance Analyst at Hargreaves Lansdown said “The Bank of England is holding firm, opting to keep the base interest rate at 3.75% despite fresh inflation pressures from rising oil and gas prices linked to the conflict in the Middle East.

“Right now, savers are still enjoying historically strong returns, but the gap between the best and worst paying accounts is widening. Easy access rates have already drifted down since the cuts of 2025 and could fall further with the uncertainty, so for savers complacency isn’t an option. Staying on top of your savings and being proactive – reviewing regularly for the best rate, making the most of any ISA allowance, and locking away excess cash not needed in the short-term – can make a real difference in keeping your money working as hard as possible.

“Fixed term bonds continue to offer a small premium, with one-year deals sitting around 4.2-4.35% so there’s still chance for savers to lock in inflation-busting returns now.”

John Phillips, CEO of Just Mortgages and Spicerhaart, said “It’s a relief to see the MPC sit on its hands at its first meeting since the Middle East conflict. Speaking with industry colleagues, there was certainly a worry that we would see the central bank react with a rate rise. That said, it’s hard to predict where we go from here and what the future path of interest rates now looks like. So much depends on how drawn out this conflict becomes and the impact it has on prices and inflation more broadly. We shouldn’t rule out the prospect of increases in the future.

“It has certainly sent shockwaves through the mortgage market and forced many lenders to quickly remove and re-price products. As a result, we have seen around a 20% increase in remortgage business over the last week or so as clients looked to secure rates before they were pulled. Brokers have been putting in the hard graft and working late to ensure applications are submitted and rates are secured. Beyond that, we haven’t seen a real drop off in buyer registrations, valuation requests or mortgage appointments, signalling that the wider turmoil and uncertainty hasn’t yet filtered through to all buyers and movers. People are still getting on with the task at hand and are seeking expert advice to do so.

“It’s a real example of where advisers prove their value. As clients continue to navigate a volatile market in the coming days, weeks and months, it’s crucial that we remind them of that value and the expertise we can offer. While rates may be shifting, all is certainly not lost – there still plenty of opportunities out there in the market. It’s up to us to be proactive and to share our knowledge.”

Charles Resnick, Chief Finance Officer at Afin Bank, said “Today’s decision to hold interest rates was no surprise given soaring energy prices caused by the war in the Middle East. However, timing for the next cut is now more uncertain and will depend on how long the price shock lasts.

“Minutes from February’s meeting showed that the MPC expected inflation to fall back to its 2% target from April, but the rise in oil and gas prices has made the near-term inflation outlook more uncertain. The Monetary Policy Committee could still cut the Base Rate next month or it could remain on pause for even longer.

“Although we have already seen some fixed rate mortgage deals being pulled from the market, overall lenders are likely to remain disciplined and cautious, reflecting uncertainty over the timing of the next cut.”

 Paul Broadhead, Head of Mortgage and Housing Policy at the Building Societies Association (BSA) said “While many borrowers were hoping the MPC would cut the Bank Rate today, the decision to hold it at 3.75% is not surprising given the impact the conflict in the Middle East is having on global energy prices.

“Whilst there have been some changes in mortgage availability as the need arises for lenders to reprice, there remain many deals available to both first-time buyers and those looking to remortgage.

“Building societies are continuing to support first-time buyers through a long-term, responsible approach to lending, innovative products to suit a range of needs, and aspiring homeowners should not assume they need to wait. A conversation with a lender or mortgage adviser could open up more options than expected.”

Kris Brewster, Interim CEO at LHV Bank, said “This base rate hold reflects just how uncertain the outlook has become. Inflation was already running ahead of target, and with tensions in the Middle East driving up oil prices, the risk is that price pressures build again before they ease.

Even without a rate move, households are likely to feel the impact through higher fuel costs and rising prices across everyday spending. That makes it more important than ever to make sure cash is not sitting in low paying accounts.”