The Bank of England has left rates unchanged at 3.75%, as expected. With similar decisions from the Federal Reserve and European Central Bank, the focus is firmly on forward guidance rather than policy action. Markets have already adjusted to a changing outlook.
Expectations have moved towards higher-for-longer rates, with bond yields rising and volatility increasingly influenced by geopolitical developments and supply-side pressures. For asset managers, this reinforces a more complex investment environment. The shift away from a clear easing cycle towards a more uncertain path for rates is affecting asset allocation decisions across fixed income, equities and currency markets.
Industry experts share their thoughts on the latest announcement:
Ed Hutchings, Head of Rates at Aviva Investors, said:
“Today’s BoE decision to keep the rate unchanged was fully expected but going forward, it’s clear there are a lot of concerns amongst MPC members that hikes could well be needed. This marks a huge change to just a few months ago when cuts were expected. Since the start of the Iranian Conflict the economic data has largely held up, yet with inflation expectations on the rise and the potential to be cemented further, it’s more than likely hikes will be coming, even despite the growth outlook being somewhat of a worry.
“When combining this backdrop with the on-going political noise, UK gilts have struggled. So, patience for now perhaps, but in time, overweight positions will become increasingly attractive.”
David Rees, Head of Global Economics at Schroders, said:
“Today sees no change to interest rates or the Bank’s hawkish tone. With headline inflation rising to 3.3%, wage growth easing only gradually and services inflation still looking sticky, the risk is that this shock becomes more persistent.
“There is also a second-round risk later this year if the energy squeeze morphs into pressure on food prices. Higher fuel and shipping costs, plus renewed pressure on inputs such as fertiliser, could lift grocery inflation with a lag.
“The risk of persistently higher inflation, along with speculation about political change after the local elections, has lifted gilt yields to near 20-year highs. Even so, the bar for hikes remains high. With some slack emerging in the labour market and growth likely to weaken if disruption drags on, we doubt the Bank will tighten unless economic activity stays strong enough to absorb it.”
Adam Ruddle, Chief Investment Officer at LV=, said:
“The Bank’s decision to hold interest rates at 3.75% comes as little surprise, and marks no change since the end of 2025. However, it is worth noting that prior to the escalation of the Iran conflict, the economic backdrop was increasingly pointing towards a rate cut.
“The near‑total disruption to the Strait of Hormuz has triggered a sudden and significant supply shock, keeping inflation concerns firmly in focus.
“Energy markets are already feeling the strain, with higher oil prices feeding directly into jet fuel costs, pushing up air travel and freight expenses. Knock‑on effects are then expected to spread into food, manufacturing and pharmaceuticals in the months ahead as shortages of fertilisers, helium, and other critical inputs take hold.
“The Bank’s decision today will be a blow for households already under pressure: LV’s latest research* shows 36% of people are worried about the rising cost of everyday items such as food and clothing, while a further 34% are concerned about higher energy bills. For many consumers, conditions are likely to worsen before any relief is felt.
“This also means borrowing costs remain higher for longer, offering little immediate relief on mortgages or other loans. With consumer confidence already fragile, holding rates risks reinforcing a more cautious mindset, encouraging people to delay major spending decisions and adding further drag to economic growth.
“This underlines the increasingly difficult balancing act that the Bank continues to face. Inflationary pressures point towards tighter policy, while a slowing economy argues for support through lower rates. For now, policymakers are firmly in ‘wait and see’ mode, waiting for clearer data to show which force will ultimately dominate before making their next move on interest rates.”
Lindsay James, investment strategist at Quilter:
“Given inflation hit 3.3% in March and is likely to be on a rising trajectory as higher energy costs and specific shortages bleed into prices across the wider economy, it is no surprise to see the Bank of England choose to hold interest rates where they are. Inflation expectations have already risen sharply and the BoE expects it to remain sticky throughout the year, with the third quarter projection now at 3.3%, 1.4 percentage points higher than at the time of the February Monetary Policy Report.
“UK gilt yields have risen to levels not seen since the global financial crisis, with the 10-year yield now exceeding the psychologically important threshold of 5%, further pressuring government finances and increasing the cost of fresh capital for the wider economy, impacting consumers and businesses alike.
“Whilst the Bank of England has limited tools as its disposal to tackle the enormous collateral damage wrought by incoherent US foreign policy, its response signals that whilst monetary policy can do little to calm the oil price, it can do quite a bit to hurt growth. However, inflation has become one of the biggest economic concerns this decade and as such it will not tolerate what should be a time-limited inflation spike from becoming more deeply engrained in the British psyche.
“This calls for a careful choice of words from the committee which ahead of this meeting the market has translated into between two and three rate hikes by year end. Whether or not that comes to fruition is purely down to events in the Middle East and if the US and Iran can find an off ramp to de-escalate and bring the oil price back down.”
Rob Morgan, Chief Investment Analyst at Charles Stanley, part of Raymond James Wealth Management, said:
“The BoE is facing a huge test as it attempts to navigate a bleak landscape of escalating costs for businesses and households while the economy plods along in limp mode.
“The deepening Middle East crisis has dramatically shifted the inflationary outlook, and officials have understandably retreated to their ‘wait-and-see’ shells until the fog clears. The base case even for the optimists is inflation stuck in a zone around 3% this year rather than gradually falling to the 2% target as previously anticipated. That means second-round effects could loom large and interest rates are firmly off the table until there is greater visibility of the extent of the lasting mark.
“The UK is acutely sensitive to energy and import costs, and any move to cut rates would likely be met by weakness in the pound, worsening the domestic price picture. Equally, policymakers are disinclined to increase bank rate as things stand. It is already in restrictive territory in the context of a fragile economy, and any move higher would further weigh on growth. There’s also the possibility the situation may resolve itself and any pre-emptive action prove unnecessary.
“Overall, it means a holding pattern for rates until there is more clarity.
“Market pricing continues to lurch between scenarios of renewed hikes and delayed cuts, highlighting how sensitive investors are to small shifts in central bank language. Ultimately, though, the path for policy hinges on one unknowable variable: how long the conflict lasts and how severely it disrupts energy markets. If the shock proves temporary, the MPC can dust off its easing bias. But a prolonged period of elevated prices would force an unenviable choice – stamp down on inflation or cushion short‑term economic pain for a vulnerable economy.”
Nick Flynn, Retirement Income Director at Canada Life, said:
“As expected, the Bank of England has held rates this month, a widely anticipated move as committee members await clearer data on how the Iran war’s inflationary shock will feed through to the economy.
“From an annuity perspective, the picture is more nuanced than the Bank Rate alone. Annuity pricing is driven largely by long-term government gilt yields – effectively the cost of government borrowing – which remain close to their highest levels since the 2008 financial crisis, even after six interest rate cuts since 2024.
“With the Bank of England voting to hold rates today and the government’s borrowing costs hitting recent highs, those considering an annuity can continue to benefit from a competitive pricing environment. The latest data from Canada Life1 shows a lifetime annuity with a £100,000 purchase value would pay an income in the region of £7,478 a year for someone aged 65 with no health or lifestyle conditions to declare. Health concerns or lifestyle type factors such as smoking or high BMI could increase this considerably.
“With the full impact of the geopolitical backdrop yet to be realised, uncertainty remains a defining feature of today’s market. In this environment, the security of a guaranteed income can look increasingly appealing to retirees who value certainty and stability.”
Luke Bartholomew, Deputy Chief Economist, at Aberdeen said;
“The decision to keep policy on hold today was widely expected. Instead, the market was much more interested in how the decision was communicated, especially given the hawkish lurch at the last meeting, which was subsequently walked back.
This time the Bank has leaned heavily on its scenarios approach to describing the outlook and risks which should help to clarify the reaction function, and the data policymakers will be watching to decide how to set policy.
We are still minded to think that the recessionary risks facing the economy will limit any second round inflation effects, and so caution against tightening policy. But if oil prices continue to move higher, it is hard to see how the Bank avoids having to hike later this year.
Chris Beauchamp, Chief Market Analyst at IG, said:
“Investors should be wondering how long this sanguine outlook will hold. True, the BoE has ditched its single forecast in favour of three scenarios, but this still seems like a ‘cross your fingers and hope’ approach.
“With the blockade set to continue and even fresh military action looking more likely, there is a much greater chance that these higher energy costs embed themselves in the UK economy and force a more hawkish view as the summer goes on.”
Michael Browne, Global Investment Strategist, Franklin Templeton Institute, said:
“It is worth remembering that at the last MPC meeting there was a unanimous vote to hold rates. In February, before the Iran conflict began, four members had voted in favour of a rate cut. The Committee has a bias for acting slowly, as seen in 2022, when it was widely criticised for reacting too slowly to both rising inflation and the risks stemming from Russia’s invasion of Ukraine.
Today we see a similar threat, with oil prices returning to levels last seen in 2022. UK PMI data has remained relatively resilient compared with the rest of Europe, although there are signs that the labour market is beginning to weaken. Meanwhile, gilt markets have sold off sharply, with 30-year yields reaching levels not seen since 1998.
By not raising rates, the MPC is sending a message that it is tolerant of inflation, as in 2022. It may have been too much to ask the committee to go from almost cutting rates, to raising rates in just two meetings but the markets need assurance that the UK’s inflationary trajectory is sound, that lessons were learnt from 2022 and that any change of political leadership is not a risk.
This outcome leaves doubt and when markets have doubt, they tend to be unforgiving. Under this scenario, gilts, Sterling and mid-cap equities might come under pressure.”
Susannah Streeter, chief investment strategist, Wealth Club:
“With geopolitical tensions so fraught, the Bank of England wanted to avoid a knee-jerk reaction and is trying to project calm by keeping rates on hold. But there’s clearly unease spreading around the table, as oil prices reach scorching levels and the repercussions risk seeping into the price of everyday goods.
Policymakers are wary of signs that inflation is becoming embedded in the economy through higher consumer prices and sticky wage growth but have opted for no action today with 8 members voting to keep rates on hold and Huw Pill, the one dissenter, opting for a hike.
The members opting to hold rates are more cautious, with deflationary impacts also potentially swirling. The economy is looking set to lose its early sparks of momentum, as shoppers turn cautious and companies pause investment, so demand is likely to be squeezed out of the economy anyway, which could help keep a lid on inflation going forward.
Nevertheless, financial markets are pricing in three rate hikes to come amid fears of a deteriorating situation in the Middle East and expectations that commodity prices will stay highly elevated. This is a sharp change compared to when the ceasefire was announced. We’re back where we were in mid-March, with worries returning that the world will face a prolonged energy crunch.”
Jeremy Batstone-Carr, European Strategist at Raymond James Wealth Management, said:
“The Bank of England’s rate-setting Monetary Policy Committee (MPC) held the UK base rate at 3.75% in an 8-1 decision. The split in the MPC is unsurprising, given both Chief Economist Huw Pill and the hawkish-leaning Catherine Mann previously hinted that a rate hike may be required sooner rather than later, as insurance against both higher headline inflation and ‘second round effects’ which are even harder to shift.
“For the time being, March’s slight moderation in underlying CPI inflation proved sufficient to placate the majority of the nine-person Committee. Governor Andrew Bailey’s commentary pointed towards wariness on raising the base rate prior to clear data confirmation, while Deputy Governor Sarah Breedon added her name to the list of those fearing growing price pressures.
“The European Central Bank, which will take its decision on regional rates shortly, provided a scenario analysis to accompany and justify its policy stance in mid-March, and a similar approach from the Bank of England will help place the decision in contemporary context.
“Financial markets have been quick to price in at least two 0.25%-point rate hikes before year-end, and whilst having opted against pulling the trigger pre-emptively, the central bank will want to talk tough, provide itself with optionality and keep open the possibility of higher rates, should conditions in and around the Persian Gulf remain unstable.”
Ed Monk, Pensions and Investment Specialist, Fidelity International, said:
“No change in headline interest rates today but this may be the calm before the storm. Ahead of the decision today the bond market was pricing in as many as three quarter-point rises over the next year. The first of those is possible at the next MPC meeting in June. Were all those rises to happen it would place a hard brake on an economy that is forecast to grow only slightly this year.
“It’s not certain, however, that we will see those rises. The Bank will be reluctant to raise rates in the face of already slowing growth and will know that higher energy prices can have a deflationary effect on the economy without the need for rate rises on top. Rate-setters will be wary of inflation widening out, as happened following the invasion of Ukraine. Unlike then, however, wage rises and employment are now weakening, raising the chances that the Bank will look through a spike in headline inflation.
“While we are yet to see a rise in the Bank of England rate, the consequences of the conflict in the Middle East are already visible in the mortgage market where rates have risen by around one percentage point since fighting broke out. That’s likely to place strain on the property market. For investors, stock markets have proved resilient so far. Earnings growth in the US has encouraged a bullish mood and investors are choosing to believe that an end to the conflict and a return to normal trade will arrive. Sentiment is likely to shift quickly as the news-flow changes, and it would be wise to expect volatility from here.”
Harry Woolman, Global Capital Markets Analyst at Validus Risk Management, said:
“The Bank of England met today with the Monetary Policy Committee electing to holding its base rate at 4%. The vote split of 8-1 in favour of a hold versus a 25bps hike was in line with market expectations. March’s meeting shocked investors by leaning in favour of higher-for-longer rates, culminating in a >30bps move in two-year rates in the aftermath. Today’s meeting, therefore, proved welcomely uneventful, with Andrew Bailey acknowledging that the base rate was in a “reasonable place”.
“Nevertheless, the central bank’s decision is largely overshadowed by domestic and international geopolitics. Domestically, Keir Starmer remains under the microscope over his appointment of Peter Mandelson as ambassador to the US. This has received added attention in recent days amid the fallout of Mandelson’s failure of security vetting and subsequent handling by leading UK Civil Servants and the Labour Party. The political risk premium has no doubt increased for UK assets, particularly ahead of next week’s local elections. Probability markets have a 68% chance of the PM being removed by year-end – no doubt next week’s voting will prove pivotal for his tenure.
“Internationally, the Middle East conflict continues to add to stagflation pressures in the UK economy – inflation has run above the central bank’s 2% target since October 2024, thus complicating the read through for policymakers. Near-term credit conditions look set to stay perilous for UK businesses and consumers alike.”
Michael Metcalfe, Head of Macro Strategy at State Street Markets, said:
“Rates are hold for now, but the balance of risks have tipped decisively. While hopes of AI earnings continue to buoy stock markets, applications of AI to measure the tone of the Bank of England now point to the risk of hikes rather than cuts. A fear that is reinforced by real-time inflation data from State Street PriceStats showing a further surge in online inflation above 4% in April.”
Daniele Antonucci, Chief Investment Officer at Quintet Private Bank (parent of Brown Shipley), said:
“Rates on hold at 3.75%, with an emphatic 8-1 vote. While the bar to an immediate hike remains high, it’s no longer theoretical. The Bank has stopped pretending there is a single forecast path. Policy is now explicitly contingent on the energy shock morphing into second-round effects.
“The idea is mapping outcomes based on energy prices and behavioural spillovers. In the worst case, inflation almost doubles and stays above target for years. That path would require a rapid and forceful tightening. In more benign scenarios, higher market rates do part of the job.
“Weakening labour demand is the main counterweight to energy-led inflation. The Bank’s reaction function works along these lines: patience if inflation fades, speed if it sticks. That said, financial conditions are already tightening without a policy move.
“Growth risks are rising and acknowledged, but not decisive yet. The UK’s gas exposure keeps inflation risks skewed to the upside. Markets should read this as a conditional pause. The next move depends less on headlines and more on wages, expectations and pricing behaviour.”
Neil Wilson, Investor Content Strategist at Saxo UK, said:
“The Bank of England left rates on hold as expected. The decision appears justified as no one knows how long the crisis in the Middle East will last nor how long this energy supply shock will feed into durable inflationary pressures.”
“While the Bank is mindful of inflation, recent labour market data has softened and does not suggest second order effects of wage price spirals. This is not 2022 – the labour market is in a far worse place, workers lack the bargaining power they had then, rates are already restrictive not at the zero lower bound, and we don’t have the huge post-pandemic demand impulse that unleashed prices and inflation expectations became unanchored.”
“The last meeting indicated that even dovish policymakers were thinking about hikes and there was a hawkish repricing in gilt futures that Andrew Bailey pushed back against. I don’t see how all that much has changed – the Bank of England ought to look through this temporary supply shock and wait a while longer before it thinks about thinks about raising rates.
“While inflation has ticked up due to motor fuel prices, we need more time to see the impact on broader inflation. Business surveys meanwhile paint a mixed picture with the Bank’s own Decision Maker Panel not suggesting much pass-through. It will be harder for firms to pass on higher costs than it was in 2022 – the Bank risks fighting the last war.”
“Hikes now will guarantee recession, and I don’t think the market is correct to price in hikes this year. That doesn’t mean the outlook for gilts is great – political and fiscal risk premia are lurking.”
Derrick Dunne, CEO of YOU Asset Management, said:
“In many ways, today’s decision was not unexpected. It colours the considerable uncertainty the economy now faces, with issues emerging in the labour market, consumer and business confidence and concerns in the property market thanks to higher mortgage rates.
“These rates have softened slightly since the onset of the crisis, but with oil hitting new highs it is clear the problem is far from over. Every week the conflagration drags on is another month of potential price pressure for households and businesses into the future.
“The trouble is that the argument for hiking rates into this environment is weaker than it might appear. Energy price hikes are an external shock which won’t be fixed by higher rates – indeed they act as a form of rate hike on households as they move spending away from other areas.
“To hike would be a decidedly risky strategy – one which could tip the economy over into recession. The economy is in a much less stable position than it was in 2022 when the first wave of inflation hit. Labour markets look fragile, consumer and business confidence is faltering, and households have spent savings to keep up with living costs.
“Anyone unsure what this could mean for their long-term financial plans should consider consulting with a financial planner.”
George Lagarias, Chief Economist at Forvis Mazars said:
“Today’s rate hold, with a resounding 8-1 vote, reaffirmed two things. First, that the British central bank, like every other central bank, is in “wait and see” mode. Interest rates are a very blunt tool, and ill-suited to counter geopolitical supply shocks.
“Second, an acknowledgment that while price increases will likely drive goods prices higher, they are not projected to translate into wage growth demands. While this sounds alarmingly like the “inflation is transitory” from 2021, the backdrop is different and possibly justifies a view that the inflation spike could be smaller and more short-lived. Growth is sluggish, unemployment is rising and savings rates are lower than their post-pandemic levels.”
Esther Watt, Bond Strategist at Evelyn Partners, said:
“Given the sharp market moves on a particularly hawkish read of March’s report, which saw interest rate cuts swiftly repriced to a high likelihood of a 25 basis point hike by year end, and a quick intervention from Governor Andrew Bailey shortly after, getting the tone right of today’s report was paramount.
“They landed with replacing their central forecast in favour of a three-scenario framework to illustrate the range of possible outcomes. In all three, inflation is projected to be around 3% in the near-term with Scenario 1 falling to 2% by the first half of 2027 and then undershooting the 2% target for the following two-years; In Scenario 2, inflation is seen falling to 2% by the second half of 2028 and then holding at 2% for two-years and in Scenario 3, rising to a peak of around 6% by the second half of 2026, falling to 3% by the second half of 2027 and then to 2.5% by the end of 2029. The balance of risks has clearly shifted from two-sided to skewed to the upside for inflation.
“In the six weeks since the last MPC meeting, headline CPI picked up to 3.3% as expected (3.0% prior) driven by a rise in energy contribution from fuel prices and air fares. Core inflation, however, came in at a softer-than-expected 3.1% (3.2% surveyed and prior) with the initial suggested that perhaps inflationary impulses were struggling to feed through.
PMIs on the other hand, indicated that price pressures are building quickly. The final read of the fourth quarter GDP print was confirmed at 1.0% and unemployment surprisingly fell to 4.9% (5.2% surveyed and prior) due to fewer students looking for a job while they study. Private earnings growth fell marginally to 3.2% as expected (3.3% prior).
“With oil markets close to four-year highs and political strife haunting Prime Minister Keir Starmer, nervy gilt markets were pricing in three 25 bp hikes through to year end as of last night. Given there were no sudden moves, arguably they have been somewhat reassured by the extent the tone shifted from ‘wait-and-see’ to ‘rate increases may be required’.”
Janet Mui, head of market analysis at RBC Brewin Dolphin said:
“The Bank of England kept rates on hold in an 8-1 vote, but today’s updated economic scenario analysis highlights a more difficult and potentially stagflationary outlook. While inflation is projected to remain higher across all three scenarios of varying severity of energy shock, growth expectations have also softened as tighter financial conditions, weaker real incomes and rising uncertainty weigh on activity. This leaves the MPC on high alert, while conscious that growth momentum is deteriorating.
The overall message remains cautiously hawkish, but the MPC is preserving policy flexibility rather than signalling a definitive push toward rate hikes. Therefore, markets arguably may be too aggressive in pricing two to three rate hikes this year, given weaker growth projections and the existing tightening delivered through higher gilt yields.”
Isabel Albarran, Investment Officer at TrinityBridge, said:
“As expected, today’s Bank of England meeting saw no change to rates, although futures markets continue to price in 2-3 cuts in the coming year. Chief Economist Huw Pill’s vote to hike rates reiterates the committee’s caution on the inflation outlook but the Committee’s focus may shift from energy prices to energy availability in coming months.
“The faltering progress of negotiations has hitherto dominated market moves, with the inflationary impact of higher oil prices the main focus. In contrast to the uncertain political picture, with each day that passes it becomes increasingly certain that oil supply will be meaningfully impacted as we enter summer. The Strait of Hormuz has now been closed for two months and a record 58m barrels of oil are now stranded at sea in the region. Futures contracts are beginning to price in this reality, with June contracts at $112 per barrel, above the March peak. This has implications for both energy prices and availability.
For central bankers, both inflation and growth impacts must be considered, but so far the focus has been on energy prices rather than energy scarcity. MPC members are clearly wary of repeating the 2021 mistake of underestimating the persistence of inflation, and have paused rate cuts. However, if scarcity becomes more of an issue, it may be economic activity that draws into focus. This would likely trigger a significant repricing of rate expectations.”
