Bank of England holds interest rates amid global tensions

Only weeks ago, a March rate cut seemed highly plausible. Inflation had been moving closer to the Bank’s 2% target, falling to 3.0% in January from 3.4% in December. Core inflation (which excludes food and energy) is now 3.1%, suggesting underlying price pressures have eased too, even if progress remains gradual. 

However, the outbreak of conflict in the Middle East triggered a sharp rise in oil and gas prices, which could slow or partially reverse recent progress on inflation if higher prices persist. The Office for Budget Responsibility now expects energy-driven inflation to rise by at least one percentage point this year, increasing the case for caution. If energy prices remain elevated, that could add to inflationary pressures and make it harder to justify near‑term rate cuts which is why the Bank is more likely to pause further reductions until the outlook becomes clearer. 

This geopolitical shock has also heightened concerns about stagflation which is a combination of slowing growth and rising prices. According to the Office for National Statistics, UK GDP has stagnated in recent months, and unemployment has risen to a ten‑year high, strengthening the argument for lower rates. But with inflationary risks back on the rise, the Bank judged that holding rates was the most prudent option for now, balancing weaker growth with the risk that energy prices could reignite inflation.

For savers, today’s announcement may come as mixed news.

On one hand, a hold at 3.75% helps preserve the relatively attractive savings rates that have become available over the past 18 months. Savings providers typically adjust their interest rates in line with changes to the base rate, so keeping the rate where it is may help maintain competitive returns, at least in the short term.

However, market volatility caused by geopolitical tensions could lead banks to adjust product pricing even without base rate cuts. And if inflation does start to rise again, the real (inflation‑adjusted) value of savings could be eroded, even if headline interest rates remain relatively high.

This could be a key moment to review whether your money is working hard enough. 

For investors, today’s decision reinforces the importance of staying focused on the long term. Market volatility has increased since the conflict began, with rising energy prices pushing bond yields higher and clouding the return potential for risk-based asset in the short-term. 

However, the Bank’s decision to hold, rather than raise rates, offers some stability. It signals that policymakers see the current spike in inflation as manageable and potentially temporary. For long‑term investors, this matters: it suggests that the broader direction of travel for policy is still towards lower rates, even if cuts arrive later than hoped. 

A period of steady rates can support financial markets by giving companies more confidence over borrowing costs and helping to stabilise bond markets. For diversified investors, this can create opportunities, not least in areas that benefit from medium‑term rate reductions, such as fixed‑income markets or rate‑sensitive sectors like property.

Amid global uncertainty, today’s decision is a reminder of the value of:

• Diversification: Spreading investments remains one of the most effective ways to manage risk during unpredictable market conditions.
• Cash management: Savers should take the opportunity to review whether their savings strategy still aligns with their financial goals and the current rate environment.
• Long‑term planning: Volatility is uncomfortable, but history shows that staying invested through periods of uncertainty is often more beneficial than reacting to short‑term market movements.

While the Bank of England’s rate hold reflects today’s complex global environment, it also offers reassurance that policymakers remain focused on balancing inflation control with economic stability. For both savers and investors, this is a moment to review, not overhaul, your financial plan and ensure it remains aligned with your long‑term objectives.

This article is for information purposes only. It is not intended as investment advice.

The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors might not get back their initial investment.

There is no guarantee by investing money it will keep level or beat inflation, particularly when inflation is high.

Any views expressed are our in-house views as at the time of publishing.