Interest rates hold at 3.75% – industry reaction

The Bank of England has announced that it has held interest rates at 3.75% following the first meeting of its Monetary Policy Committee of 2026.

The Bank has voted by 5 to 4 to keep rates on hold at 3.75%. Four members voted to reduce the base rate to 3.5%, giving an indication of forward guidance.

Commenting on the decision, Paul Noble, CEO of Chetwood Bank, said “I don’t think anyone believes today’s result means rates will stay at their current level for long. The MPC might be getting mixed signals from the economy, but it feels like there’s a general sense that it’s only a matter of time before we see another cut.

“That expectation is already feeding into pricing, particularly at the short end of the market. Whilst we’re seeing savings rates gently ease back as the market anticipates lower bank rates later this year, longer-term borrowing costs, including mortgage pricing, remain influenced by where longer-dated swap rates settle. These have been more resilient.

“Falling swap rates will mean we almost certainly see rates go down across the entire savings space in the coming weeks, which means smart savers will look to lock down the best fixed-rate deals while they’re still high. Across the board, savers need to be alert and make sure they’re making the most of their money, particularly any funds left in low- or no-interest accounts when they could be making more of a difference.”

Charles Resnick, Chief Finance Officer at Afin Bank, said “Following December’s cut in interest rates another one this early in 2026 was always unlikely. In fact, the market is not expecting to see a rate cut until April’s meeting where the Monetary Policy Committee (MPC) should have a clearer view on pay awards and whether this is further evidence of slack emerging in the economy.

“MPC members appear to have little appetite to loosen policy again so the voting at each meeting will continue to be close.

“I expect lenders to remain disciplined with their mortgage rates given the uncertainty over the timing of the next cut and the MPC’s more cautious approach to returning inflation sustainably to its 2% target.”

Ben Allkins, Head of Mortgages and Protection at Just Mortgages, said “The decision to hold the base rate was widely expected and consistent with the bank’s long-held approach. However, it’s clear that the optics around this decision have shifted. We’ve all seen mortgage rates edge back up as swap rates react to the growing expectations of fewer cuts. It’s a reminder to brokers and the wider market to not count its chickens – particularly given the challenges at home and abroad.

“For brokers, it’s a moment to be proactive. In particular, we need to be engaging with those clients who may have been holding off in the hopes of further competition and movement on rates. The focus has the shift away from a rate conversation and one that prioritises top quality, holistic advice – helping borrowers navigate the market and explore the wide variety of options still available to those from all backgrounds and circumstances.”

Mike Randall, CEO at Simply Asset Finance said “This rate hold provides some crucial breathing room, helping businesses capitalise on the positive shoots of economic growth we’ve seen in recent weeks.”

“Further anticipated rate cuts and cheaper borrowing costs will also help to offset the cost pressures SMEs have been forced to absorb – empowering firms to invest in productivity, rather than simply staying afloat.

“However, with over half of SMEs doubting their loan approval chances, the industry must now help to change SMEs’ perspective on finance. Banks, lenders and brokers must collaborate to ensure businesses know funding is not only accessible to them but guide them on how it can be used effectively to unlock their full potential.”

Neil Rudge, Chief Banking Officer at Shawbrook, said “The larger-than-expected rise in the latest inflation reading will have reinforced the MPC’s decision to keep rates on hold. While there are clear signs of cooling in the labour market, today’s decision underlines that bringing inflation sustainably back to target remains the Committee’s overriding priority.

“For SMEs, this means continued pressure on costs and cashflow at the start of 2026. However, the direction of travel for interest rates still appears to be downwards, provided inflation continues to ease. As conditions gradually improve, businesses will be better placed to make considered investment decisions, and access to funding that reflects their individual circumstances will remain an important part of navigating what is still a complex economic environment.”

Helen Dickinson, Chief Executive at the British Retail Consortium, said “Borrowers must wait at least another month to see if mortgage costs come down, adding to the squeeze on consumers, who also face high food prices and rising unemployment. The MPC was clear that inflation, particularly in food, remains above target as a result of elevated ‘wage and price pressures’. This is of no surprise to retailers who have had to absorb billions in extra costs following the increase in employer National Insurance Contributions, higher wage bills, and a new packaging tax.

“While the Bank may expect inflation to ease in the coming months, this could be impacted by new government policies. The big one on the horizon is the Employment Rights Act. Several proposals within the new Act – such as on guaranteed hours – could create a substantial cost and administrative burden for retailers, while limiting job flexibility and employment opportunities. By working with retailers to design policies which work in the real world, Government can get the implementation right and raise standards without harming entry-level and flexible jobs, or pushing inflation back up.”

David Bharier, Head of Research at the British Chambers of Commerce said “Holding the interest rate at 3.75% was expected as the Bank grapples with the twin challenges of domestic cost pressures and an unpredictable global outlook.

“Our data show that a majority of firms still expect to raise their prices, with labour costs cited as the top cost pressure. Meanwhile, tariff threats are already prompting contingency planning and risk pushing prices higher if retaliation follows.

“That leaves the Bank facing a difficult trade-off. Businesses tell us inflation risks are likely to persist in the short term, but a lower interest rate will be a key part of kickstarting the economy. However, today’s more optimistic MPC forecast, predicting inflation returning to target by April, will be welcomed by the firms we represent.

“For businesses across the UK, greater policy certainty and a clear path to lower borrowing costs are essential to unlock investment, boost productivity and transform trade.”

Suren Thiru, ICAEW Economics Director, said “Keeping interest rates on hold will feel like a disheartening setback for those businesses battling against spiralling cost pressures and people struggling with onerous mortgage costs, especially after another difficult Budget.

“Though the Bank’s forecast of lower inflation suggests that more interest rate cuts are coming, this latest decision confirms that the pace of easing will remain painstakingly cautious with policy already close to its neutral rate.

“Though the vote split confirms that the rate-setters remain deeply divided, if inflation falls as the Bank now expects then there should be a decisively dovish shift within the committee in the coming months, meaning more rate cuts are likely.

“Rate-setters look likely to opt for two interest rate cuts this year, possibly in April and July, while keeping a third reduction in their back pocket to deploy if the economy fares worse than the Bank forecasts.”