The Bank of England has held rates at 3.75%, in line with expectations. While the decision itself was widely anticipated, attention now turns to the accompanying message and what it signals for the path ahead. The backdrop remains uncertain. Inflation pressures are proving more persistent than expected, geopolitical developments continue to influence the outlook, and market expectations have shifted from rate cuts towards potential increases later in the year. For advisers, the implications go beyond the headline decision. Elevated gilt yields, changing mortgage pricing and renewed focus on inflation risk are already feeding into client portfolios and conversations.
Industry professionals are reacting to a period where policy may be on hold, but uncertainty remains high:
Nick Henshaw, Head of Intermediaries Distribution at Wesleyan, said: “With rates on hold amid ongoing economic uncertainty, clients may be tempted to keep significant amounts in cash while they ‘wait and see’ how things develop. However, with energy costs elevated and inflation concerns persisting, staying too heavily weighted toward cash could mean missing opportunities for meaningful growth.
“This is where advisers add real value, helping clients understand the benefits that suitable equity exposure could offer, even when the outlook feels uncertain.
“Many clients might, understandably, be concerned about recent market volatility. Smoothed funds could be valuable as a tool to bridge the gap between worry and results. They allow advisers to help clients increase market exposure while managing the ups and downs of the market, helping ensure portfolios are positioned to deliver good outcomes in terms of both returns and emotional comfort.”
David Rees, Head of Global Economics, 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.”
Ed Hutchings, Head of Rates, 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.”
Adam Ruddle, LV= Chief Investment Officer, 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.”
Katie Horne, savings expert at Flagstone comments: “Savers are currently awash with options to make inflation-beating returns on their cash. A vote to keep the base rate at 3.75% means competition among banks for savers’ cash will remain high. Banks will have to continue to fight for every pound in savers’ pockets in this higher-than-planned interest rate environment.
Traditionally by this point in the ISA cycle, banks remove products from offer and savers enjoy the last of their introductory bonus rates. This year, record numbers of Cash ISA rates are still on the market as banks cater to high demand from savers for ISA deals before the Cash ISA threshold falls to £12,000 next April.
Savers would be wise to act now, however. If inflation continues to rise, the margin between the inflation rate and top savings rates will tighten, making it harder to guarantee that inflation-busting return. Locking cash you won’t need for two or more years into some of the market’s best longer-term fixed-term deals could reduce that risk as you ride out this tumultuous market.”
Nick Flynn, Retirement Income Director, Canada Life comments on what it means for annuities: “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.”
Kevin Brown, savings specialist at Scottish Friendly, has commented on the Bank of England’s decision: “By holding rates today, the Bank of England is betting that the shock to energy markets will be temporary and won’t cause a broader, more persistent price spiral of the sort we witnessed in 2022.
“Whether that’s the case or not remains to be seen. But regardless, many households are already struggling. Scottish Friendly’s Family Finance Tracker research found 55 per cent of people say prices are still noticeably rising every time they shop, highlighting just how persistent cost pressures remain for many.
“The Bank is operating on a knife-edge. Hold rates for too long and the risk is that inflation runs away like it did following the pandemic. But move too soon and rate-setters risk squeezing family finances in an already stuttering economy.
“For households, while savings rates remain relatively attractive for now, rising inflation means the real value of cash savings can still be eroded. Therefore, strengthening financial resilience by reducing debt, building savings or considering longer-term investments, could be considered viable options.”
Michael Browne, Global Investment Strategist, Franklin Templeton Institute says: “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.”
Harriet Guevara, Chief Savings Officer at Nottingham Building Society, said: “While today’s decision to hold the base rate at 3.75% was widely expected, the bigger story is how much the outlook has shifted. Just a few months ago, markets were pricing in further cuts. Now, with the conflict in the Middle East driving energy prices higher and inflation expectations rising, markets are pricing that rates are more likely to go up than down, potentially reaching 4.25% by the end of the year.
“For savers, that’s a meaningful change. Savings rates are already competitive, and if the base rate does rise further, there could be even more to come. But it’s worth remembering that providers don’t always pass on increases in full or straight away, so savers might want to look at the fixed rates currently being offered.
“Cash ISAs deserve particular attention this year. The 2026/27 tax year is the last in which under-65s can put the full £20,000 allowance into a Cash ISA before the limit drops to £12,000 from April 2027. That’s a significant reduction, and once this window closes, it’s gone. If you haven’t used your allowance yet, now would be a good time to consider all your options.
“On the mortgage side, the prospect of rate rises rather than cuts makes this an important time for borrowers to take stock. Anyone coming to the end of a fixed deal in the next six to twelve months should speak to a qualified mortgage broker who can assess their options and help them make the right decision for their circumstances. The market is moving, and professional advice is the best way to make sure you’re not caught out.”
“Whatever happens with the base rate over the coming months, the people who tend to come out ahead – whether saving or borrowing – are the ones who act while conditions are in their favour, not the ones who wait and hope.”
Mike Ambery, Retirement Savings Director at Standard Life plc said: “Today’s decision to hold interest rates at 3.75% was widely expected and reflects the careful balancing act the Bank of England now faces. Policymakers are trying to keep inflation under control at a time when the outlook for prices is highly uncertain, without putting unnecessary pressure on an economy that is showing only tentative signs of growth. Against the backdrop of heightened uncertainty linked to the conflict in the Middle East, this feels like a moment to hold steady and see how conditions develop before making any further moves.
“At the start of the year, many expected a fairly straightforward path to lower rates through 2026, but it’s safe to say things now look much less certain. Last week’s data showing inflation rising to 3.3% highlights the challenge ahead, with the initial impact of higher energy prices now starting to come through. Further pressure on household bills is expected in the months ahead, meaning the Bank will want stronger evidence that price rises aren’t becoming more entrenched before cutting rates.
“For savers, rates staying higher for longer can provide support, especially for those holding cash. However, the wider picture matters and inflation can continue to weaken the value of savings in real terms, even when headline rates look attractive. Those saving for the long term should consider tax-efficient options such as pensions and Stocks and Shares ISAs to help their money work harder alongside rising prices.
“For borrowers, the decision means relief is still likely to take time. Those on variable-rate mortgages or nearing the end of fixed-rate deals may continue to face increased costs for longer than hoped. Planning early, reviewing options regularly and understanding how repayments could change remains vital, particularly for households already managing stretched budgets.”
Scott Gardner, investment strategist at J.P. Morgan Personal Investing, says: “Amid heightened global uncertainty and renewed inflation pressures, Bank of England policymakers have decided to hold interest rates for a third consecutive meeting. The committee is remaining vigilant for now but its hand might be forced to act soon if inflation risks continue to build.
“The sharp spike in oil prices since the Iran conflict began and resulting rebound in UK inflation has pushed the Bank of England towards a more cautious stance as it navigates a tough balancing act. The focus of MPC members isn’t only the duration of the conflict, but the risk that the recent energy shock feeds through into broader price rises across goods and then into wages afterwards. The Bank’s own Decision Maker Panel suggests inflation could reaccelerate over the next 12 months as wage growth slows. This uneven economic outlook coupled with a volatile diplomatic situation has given policymakers an unenviable task as they wait to see if the recent shock is temporary or becoming embedded across the UK economy.
“Going into this meeting, markets had been pricing in a first rate hike in July and a further hike later in the year. Holding rates now will give policymakers greater time to assess a fast-moving situation which could shift quickly depending on diplomatic efforts. Policymakers will be wary of being caught on the backfoot once again or over reacting and pre-empting what could be a short-term price shock. Buying time is the choice for now as uncertainty remains elevated.”
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.”
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.”
Ed Monk, Pensions and Investment Specialist, Fidelity International comments: “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.”
Michael Metcalfe, Head of Macro Strategy at State Street Markets, reacts: “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.“
Chris Helyar, Partner in LCP’s investment team, commented: “The MPC’s decision to hold rates at 3.75% is effectively an extension of its ‘hawkish pause’ as it assesses the evolving impact of the energy shock. Although inflation remains above target at 3.3%, a relatively weak overall economic outlook reduces the likelihood of a spillover to wider pricing pressures, at least in the short term. This reduces the immediate need to tighten policy further, despite the inflation backdrop.”
He added:
“However, the Committee faces a delicate challenge. Having previously unsettled markets with its somewhat hawkish commentary following last time’s meeting, it sought this time to balance softening its near-term guidance while preserving the option for a rate increase later this year. But with the danger of second-round inflation effects an obvious concern, the path for rates remains highly reliant on incoming data. The MPC will not want to overreact before the duration and potential impact of higher energy prices become clearer.”
Abhi Chatterjee, Chief Investment Strategist at Dynamic Planner said: “The Bank of England held Bank Rate at 3.75% today, maintaining the cautious stance it has adopted since the Middle East conflict began disrupting global energy supplies in March. The decision was unanimous, a show of solidarity that masks a more complicated underlying reality.
“Inflation has risen to 3.3%, significantly above the Bank’s 2% target. Yet this is not a conventional demand-driven inflation. Energy and commodity prices are simultaneously constraining household purchasing power and business investment—a double squeeze that threatens growth precisely when the UK economy is already fragile. Rate rises cannot produce more oil or reduce disruption in supply chains, energy or otherwise. This creates the MPC’s genuine dilemma: tighten policy to anchor inflation expectations and prevent wage-setting from incorporating higher energy assumptions, or maintain accommodation to support an economy already showing weak growth momentum.
“The Bank’s challenge is calibrating forward guidance carefully. Signal too much concern and borrowing costs rise pre-emptively; signal too little, and wage-setters and businesses may lock in higher price assumptions. Governor Bailey has emphasised the Bank will not rush to judgement, language that reflects this genuine uncertainty, one characterised by the IMF and other major Central Banks. The June meeting will be critical, but the trajectory of incoming inflation data will likely determine whether the MPC can hold this middle ground.”
George Lagarias, Chief Economist at Forvis Mazars comments: “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, the UK wealth manager, commented: “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.”
