The Bank of England’s decision to hold rates at 3.75% comes against a far more complex backdrop than markets were expecting just weeks ago. Escalating geopolitical tensions and rising energy prices have rattled sentiment, pushing inflation expectations higher and forcing a rethink on the timing of any rate cuts.
What had been a relatively clear rate-cutting path is now much less certain, with markets increasingly pricing in a prolonged period of higher rates, and even the possibility of a more hawkish shift if inflation proves sticky. For asset managers, that raises key questions around positioning, particularly as bond yields rise, equities come under pressure and volatility returns.
We’ve gathered views from across the industry on how investors are interpreting the decision and where opportunities and risks may lie:
Jeremy Batstone-Carr, European Strategist, Raymond James Investment Services, said:
“As widely predicted, the Bank of England voted to keep the UK base rate on hold at 3.75% at its Monetary Policy Committee (MPC) meeting today. Geopolitical uncertainty made forecasting difficult, and for that reason the decision to hold was unanimous.
“Immediately prior to the onset of hostilities in and around the Persian Gulf, a seventh rate cut in the current cycle looked certain. In a post-meeting press conference last month, Bank Governor Mr. Andrew Bailey noted that a 3.25% rate represented a “reasonable market curve”, a clear indication that further policy easing was, at that point, in the pipeline.
“Unsurprisingly, the war in the Middle East changed all that. Higher energy prices, if sustained, will result in higher headline inflation. The question asked prior to the meeting’s commencement was whether the conflict might delay anticipated rate cuts, prevent them indefinitely, or even cause them to be reversed. Fast-moving developments have resulted in skittish financial markets edging to the latter position, but not imminently.
“As ever, senior Bank officials have a tightrope to walk. While sustained high energy prices would cause price pressures to rise, the UK economy has continued to struggle at the outset of the year and hardly needs a policy tightening which might only serve further to limit any revival down the road.
“Fortunately, the next MPC meeting is not scheduled until the very end of April, providing time for a negotiated ceasefire or alternatively, more economic data points on which to base a more considered decision. But for now, senior officials took the view that the most prudent course of action was to maintain the status quo as the ongoing conflict unfolds.”
Daniel Austin, CEO and co-founder at ASK Partners, said:
“The Bank of England’s decision to hold rates at 3.75% reinforces the ‘higher for longer’ reality facing households and property markets. While policymakers continue to signal potential cuts later this year, the recent uptick in inflation and renewed geopolitical tensions in the Middle East underline just how uncertain the path back to target remains.
“Any escalation that pushes up energy prices or market volatility could easily complicate the disinflation story, leaving confidence fragile among buyers and developers alike. Mortgage pricing has improved and further easing would be welcome, but it will take time for meaningful relief to filter through to household finances and borrowing costs.
“In the meantime, mainstream housing activity is likely to remain subdued, with capital continuing to favour structurally resilient, income-led sectors such as build-to-rent, co-living, logistics, storage and data centres, where persistent undersupply continues to support demand. A clearer downward trajectory for inflation, alongside rates moving sustainably lower, would be the real catalyst for unlocking stalled projects. Until then, disciplined, income-focused and lower-leverage strategies offer investors a pragmatic way to stay active while managing risk in an increasingly uncertain macro environment.”
Neil Wilson, Investor Content Strategist at Saxo, said:
“The Bank of England (BoE) was always going to stand pat on rates as it’s too soon to know the outcome of the conflict in the Middle East on either inflation or growth. Markets have lately moved to price out any cuts this year and instead see a higher likelihood of a hike than a cut. But this overstates the reality: markets are effectively pricing for a wide range of outcomes. The conflict could either de-escalate relatively quickly, producing only a temporary impact on inflation, or persist, with a more pronounced effect on growth and prices. Neither scenario necessarily warrants a rate hike, and the Bank appears to broadly agree that a policy response is premature.
“The committee stressed the high degree of uncertainty facing the economy and the policy outlook, steering clear of offering a strong signal on the future path for rates in the near term. If the Iran conflict is a temporary supply shock, there are plenty of reasons not to react with monetary policy. The dilemma for the BoE is either to worry more about the hit to growth (and lean dovish) or worry about the risk of persistent price pressures – and lean hawkish. Lessons from 2022 are not directly applicable here; the current supply shock is not coinciding with the extraordinary demand surge and fiscal-monetary stimulus that amplified inflation post-pandemic – factors far more significant than the Russian invasion of Ukraine.
“For now, the prudent course is for the Bank to remain on hold until the outlook becomes clearer.”
Derrick Dunne, CEO of YOU Asset Management, said:
“Other than an unusual unanimous decision – there are no surprises that the MPC has opted to hold the base rate where it is, while events around them proceed with alacrity. In its decision, the committee rightly pointed out two things: it does not influence global energy prices, but oil and gas are both up 60% since the last meeting – an extraordinarily dangerous spike.
“Energy prices have massive secondary economic impacts, but the key thing that rate setters don’t know here is how long this conflict persists for. If things calm down in the next four weeks, then the decision to hold might be seen as the right approach, given that the economy (beyond price stability) is largely now in need of cuts.
“But if it persists, then the UK is entering dangerous economic waters. In 2022, the labour market was very different, and households had built up some financial resilience during the pandemic. Today, that resilience is spent, and the labour market is looking much weaker. If the MPC is then forced to hike into this, then we’re staring down the barrel of a perfect storm of stagflation, something routinely threatened in the past few years but never fully realised.
“Anyone unsure what this could mean for their long-term financial plans should consider consulting with a financial planner.”
Chris Beauchamp, Chief Market Analyst at IG, said:
“If anyone was in doubt as to how the BoE would respond to the current situation, then today is clear. A dramatic shift has taken place, and hikes are back on the table as the bank scrambles to respond to the likelihood of another inflation surge. This was all unthinkable just weeks ago, but is a sign of how the war with Iran has upended everyone’s forecasts.”
Daniele Antonucci, Chief Investment Officer at Quintet Private Bank (parent of Brown Shipley), said:
“The Bank of England is signalling that inflation risks have risen, largely because of the latest oil-driven energy shock. The hold at 3.75% reflects a shift in balance of risks, as the recent increases in petrol and wholesale energy prices point to a potential rebound in inflation over the coming quarters.
“Despite weak domestic growth, the dominant concern is that inflation expectations could de-anchor. Market pricing has moved decisively, with investors now assuming the possibility of rate hikes rather than further cuts. We think the bar for a hike remains high, unless inflation expectations were to trend significantly higher from here.
“The dataflow in the next few weeks will be critical, as the energy situation remains fluid and highly uncertain. Wage growth is easing, but not enough to offset the renewed inflation pressure coming through from global developments. The next policy meeting could take place against a significantly changed backdrop if energy markets continue to be disrupted.
“Given inflation concerns, and some degree of political uncertainty. we recently sold some gilts. We reallocated to emerging market bonds to gain exposure to selected oil exporters, keeping some extra cash to use if new opportunities arise. We’ve bought gold at the onset of the Iran conflict, funded by selling US Treasuries, where inflation risks and fiscal spending ahead of the US midterms could become a concern for markets.”
Michael Browne, Global Investment Strategist at Franklin Templeton Institute, said:
“The Bank of England MPC must have had one of their most difficult meetings today. What should they do in the face of a very real inflationary threat? As we dust off the 2022 playbook, we know the damage energy driven inflation can inflict – but to use the Scottish legal term, it is not yet proven.
“Last night, US markets sold off sharply after Chairman Powell failed to sound tough enough. Bond markets are nervous and need reassurance that monetary authorities are on top of their brief and prepared to raise interest rates sooner rather than later. The minutes suggest the MPC is very alive to the risks and while that may not be enough for the market today, investors should be re-assured that they will act, even though a rate rise would be bad news for the economy.”
Pierre Roke, Global Capital Markets Analyst at Validus Risk Management, said:
“The Bank of England unanimously voted to keep rates unchanged today, against expectations of a 7–2 split. The decision suggests a more hawkish tilt than anticipated, aligning with the sharp shift in the rate outlook driven by recent geopolitical events.
“Prior to the escalation in the Middle East, markets were pricing an 80% chance of a rate cut today and further easing by year-end. That pricing has now been significantly scaled back, with markets swinging toward pricing roughly a 40% chance of three hikes by year-end.
“While this has drawn comparisons to the 2022 energy crisis, the backdrop is different. The UK is in a notably worst position to provide fiscal support, with 10-year gilt yields sitting materially higher. This helps explain why UK rates have seen one of the more pronounced repricing across the G10, reflecting the economy’s sensitivity to energy-driven inflation shocks. That said, the scale of the move looks to be overdone – 2yr are up heavily on the day.
“Despite the unanimous vote, the BoE is unlikely to validate a substantial hawkish market narrative in line with the recent move in gilts, with policymakers still balancing inflation risks against a soft growth backdrop. If Andrew Bailey pushes back against current pricing in his remarks, cable could find some support, particularly given we have seen a 4% drop from its highs.
“In short, while the Bank remains on hold, market rate expectations have shifted aggressively – leaving room for a near-term correction and continued volatility.”
Chris Cheverall, Head of UK at CMC Markets, said:
“Before the outbreak of the war, inflation was expected to fall closer to the 2% CPI target. While the conflict in the Middle East may not be the primary driver of the decision to hold interest rates at 3.75%, tensions in the region are a consideration thanks to the sustained rise in oil and gas prices and increased uncertainty.
“The Bank of England’s decision to hold rates had been anticipated, and perhaps reflects a cautiously optimistic assessment of the UK growth outlook. Holding rates suggests the continuation of a more balanced approach, underscoring the view that policy is now firmly in restrictive territory, while avoiding the risk of overtightening into a weakening macroeconomic backdrop.
“By holding steady at 3.75%, the MPC is choosing to maintain a firm stance and buy time to avoid overreacting to short-term data. Market focus now turns to the coming months, and what the eventual impact of the conflict and resulting energy crisis will be.”
Antonio Ruggiero, FX and Macro Strategist at Convera, said:
“The Bank of England voted unanimously to keep interest rates on hold at 3.75%, marking the first decision without dissent in four and a half years. The entrenched hawkish stance – with all nine members aligned – underscores the high level of sensitivity the Bank holds toward the inflation outlook. Markets reacted sharply, with the pound edging higher and expectations for 2026 tightening now pricing in two 25 bps hikes by year‑end.
“There is a two‑pronged justification here, both cyclical and structural. On the cyclical side, the Bank had expected a sharp drop in inflation before the conflict – forecasting a return to 2% by April – largely driven by base‑effect adjustments from the 2024 budget tax increases and policy changes aimed at reducing energy bills in the 2025 budget. Today’s hawkish defensive posture reflects the fact that a major external shock has muddled that expected path.
“The structural reasoning stems from the UK’s economic exposure to energy prices. The UK faces greater vulnerability than peer markets such as the US, eurozone, or Switzerland. Brent crude is the primary benchmark for oil pricing in the Atlantic Basin and is closely linked to North Sea production. Because the UK sits at the centre of this pricing ecosystem, wholesale fuel prices track Brent very closely. The UK market is also more liberalised than the eurozone, where a larger fixed‑tax component helps cushion price spikes. Switzerland benefits from a stronger currency and a more diversified energy mix, while the US has extensive domestic production capacity – buffers the UK lacks.
“Inevitably, the MPC assigns a greater weight to energy inputs when forecasting inflation, which helps explain the more radical hawkish posture adopted today.”
Jonathon Marchant, Fund Manager at Mattioli Woods, said:
“The Bank of England’s decision to hold rates was, on the face of it, a holding pattern in light of an increasingly unstable geopolitical environment. Inflation had been widely expected to ease in the coming months, giving the Monetary Policy Committee the cover it needed to continue cutting. A gradual descent toward lower borrowing costs had felt, until recently, like a question of when rather than if.
“Events in the Middle East have complicated that picture considerably. UK gas prices have jumped materially, injecting exactly the kind of inflationary pressure the MPC had hoped was behind it. Energy costs are likely to spread through the economy, through higher food and business costs, reducing the anticipated fall in inflation.
“What makes the Bank’s position particularly uncomfortable is the backdrop against which all of this is unfolding. Unemployment is at post-Covid highs, precisely the kind of economic fragility that would normally argue strongly for cuts, not hikes. Arguably, the Bank of England has been consistently behind the curve and should have cut interest rates sooner. Interest rates may now be stuck at an uncomfortable high level.”
