Overview
On March 19, 2026, the Bank of England (BoE) announced that it would keep the interest rate unchanged at 3.75%. This decision aligns with market expectations, as money markets are increasingly anticipating a more hawkish stance from the BoE, with expectations of a total of 50 basis points of rate hikes by the end of the year.
Monetary Policy Committee Voting Results
- No change: 9 votes (previously 5)
- 25-basis-point cut: 0 votes (previously 4)
- 50-basis-point cut: 0 votes (previously 0)
- Increase: 0 votes (previously 0)
Economic Commentary
The BoE's decision comes in the context of rising global energy and commodity prices, largely influenced by ongoing conflicts in the Middle East. This situation is expected to increase fuel and utility costs for households and indirectly affect business expenses. The BoE noted a prior downward trend in domestic prices and wages, but anticipates a rise in Consumer Price Index (CPI) inflation due to these new economic shocks.
While monetary policy cannot directly influence global energy prices, the BoE aims to ensure that the economy adjusts to these changes in a manner that allows for sustainable achievement of the 2% inflation target. The Monetary Policy Committee (MPC) has expressed concerns about the potential for domestic inflationary pressures to increase due to second-round effects in wage and price-setting, particularly if high energy prices persist.
Inflation Forecasts
The BoE has updated its forecasts, projecting an average increase in base salaries of 3.6% for 2026 (up from a previous estimate of 3.4%). The bank expects CPI to be “around 3%” in the second quarter and “up to 3.5%” in the third quarter, significantly influenced by the global price shock in the energy market (previously estimated at 2.1% for the second quarter).
Market Reaction
Following the announcement, the GBP/USD currency pair showed an initial rise in response to the decision and the accompanying commentary from the BoE.