Interest rate hold – what it means for markets and for you

Emma Wall, Mark Hicks and Helen Morrissey at Hargreaves Lansdown assess the Bank of England’s decision to hold rates at 3.75%, highlighting a finely balanced MPC vote, limited immediate market reaction, emerging risks from higher global bond yields, the need for savers to stay proactive as rates drift lower, and continued strength in annuity income despite calmer gilt markets.

Emma Wall, Chief Investment Strategist, Hargreaves Lansdown:

“As expected, the Bank of England Monetary Policy Committee has voted to hold rates at 3.75%. The voting split is revealing – the Committee voted by a majority of 5 to 4 to maintain Bank Rate at 3.75%. Four members voted to reduce base rate to 3.5%, which gives indication of forward guidance. With inflation at 3.4%, there is still some way to get it back to the 2% target, and higher rates are a key control for the Bank, but this vote split suggests that the first cut of the year may come as soon as March if economic data weakens. Our house view is that the Committee cuts two times this year – data dependent.

The Office of Budget Responsibility (OBR) expects inflation to finish this year at 2.5% and, coupled with growth expectations for the UK, which – while downgraded by the OBR to 1.4% – is positive for the year ahead, negating the need for drastic cuts. Today’s hold was much anticipated by the market, and as such we have seen limited movement in both equity and bond markets. The pound fell ahead of the announcement, but this was likely linked to domestic political uncertainty rather than monetary policy. Gilt yields have been in a rising trend since lows hit in mid-January and broadly linked to US Treasury yield increases, following the announcement of Kevin Warsh as the Trump’s nominee to take over as Federal Reserve Chair – whose voting record suggest that he will take a hawkish approach to rates once appointed. Inflation continues to moderate, but US policies risk overstimulating an already growing economy and this could cause government bond contagion in the UK. Zooming out, the 10-year gilt yield remains very much in the middle of its range over the last 12 months. So, while the rise has been near 10bps since the start of this week, it doesn’t leave yields in an unusual position relative to recent history.”

Mark Hicks, Director of Savings, Hargreaves Lansdown:

“With the Bank of England rate on hold at 3.75%, and inflation projected to edge gradually back towards target, the savings outlook is one of gently declining, but still historically attractive returns, with a widening gap between best‑buy and laggard providers. Easy access rates have already softened in line with cuts through 2025 and now look vulnerable to further trimming if markets price in additional easing, so complacent savers risk seeing their returns eroded in real terms as providers quietly reprice.

By contrast, fixed term bonds still offer a modest premium, and above inflation returns with competitive one‑year fixes around 4.0–4.2% and longer terms slightly higher, creating a tactical opportunity to lock in today’s levels before any further downward drift in wholesale rates feeds fully through to retail pricing. In this environment, the onus is on active management of accounts: regularly switching, using tax shelters where available, and locking away excess cash with term exposure, so that savers can capture remaining value while retaining enough flexibility should the Bank ultimately move more slowly – or more aggressively – than markets currently anticipate.”

Helen Morrissey, head of retirement analysis, Hargreaves Lansdown:

“Annuity incomes have undergone a spectacular revival in recent years as gilt yields soared. The rapid increases in income we saw, most notably in the aftermath of the mini-Budget, may have cooled but they have remained robust, and the Bank’s decision to hold rates should see this calm continue. The latest HL annuity search engine data shows a 65-year-old with £100,000 can get up to £7,679 per year from a single life level annuity with a five-year guarantee. Interest in the annuity market should remain strong, though it is extremely important that anyone in the market for a guaranteed income does their research before deciding.

Different providers offer different rates, and over the course of a retirement, you could be left thousands of pounds out of pocket if you make the wrong choice. Once bought, an annuity cannot be unwound so it could be a decision made in haste that you later come to regret. Using an annuity search engine can help you see what the market can offer you.”