The Bank of England's Monetary Policy Committee has voted 8-1 to hold Bank Rate at 3.75% amid ongoing geopolitical and economic uncertainty.
Huw Pill voted against the majority, preferring to increase Bank Rate by 0.25 percentage points, to 4%.
While markets had initially priced in at least two interest rate hikes this year when the conflict in Iran began at the start of last month, the industry later predicted that the Bank could adopt a 'wait and see' approach to consider how global events feed through to UK inflation.
The first figures released since the war in West Asia started show that CPI inflation rose from 3% in February to 3.3% in March, in line with economists' expectations and largely driven by rising fuel costs amid the Iran war.
The Committee said that inflation is "likely to be higher this year" as the effects of higher energy prices pass through, but noted that "financial conditions have tightened since the conflict began, which will help to reduce inflation over time".
In its meeting, the MPC said that its policy stance will "depend on the scale and duration of the shock, and how it propagates through the economy", but that "taking all the risks to the economic outlook into account... it is appropriate to maintain Bank Rate at this meeting".
Grant Salde, economist at Morningstar, commented: "The first effects of the Middle East energy price shock were evident in the March 2026 CPI data release, published last week, which revealed a re-acceleration in inflation owing to the large month-on-month rise in fuel costs. We expect inflation to remain elevated in coming quarters as the surge in energy prices observed since the beginning of the Middle East conflict permeate UK prices more broadly.
"Still, we expect the Bank of England will largely ‘look-through’ the temporary inflation spike and resist raising interest rates this year. A weakened labour market, softening government expenditures, and the absence of additional and synchronous supply-side shocks - as were present during the previous energy price shock in 2022 - should, in tandem, limit the extent to which the BoE needs to lift interest rates later this year."
Kevin Shaw, national sales managing director at LRG, said: "Today’s decision to hold interest rates is the news many buyers, sellers and agents were hoping for. It does not remove uncertainty from the market, but it does remove an immediate threat.
"The Bank had a difficult decision to make against an unusually unsettled backdrop. The on-off ceasefire in Iran is changing by the day and the interest rate outlook has turned turtle in a remarkably short period: just two months ago we expected two interest rate cuts; since the war in the Middle East began, two rises over the course of the year appeared a likely scenario.
"The important point is that the situation looks less fragile than a month ago. Assuming the Middle East situation does not escalate, today’s hold suggests some easing of concern around the path of rates for the rest of the year. The fears of further rises being discussed in early March now feel less certain.
"From LRG’s perspective, the property market has remained resilient. Buyer activity and sales held up well throughout April, instructions are 5% higher and we are continuing to see momentum despite the wider uncertainty. Today’s decision should help sustain that confidence.
"That said, the risk remains. The next Monetary Policy Committee meetings on 18 June and 30 July now become particularly significant. Much will depend on inflation, employment and whether global events continue to feed through into energy prices and household costs.
"The concern is that a rise later in June or July could coincide with the market entering its quieter summer season. As property professionals heave a sigh of relief today, they must also think ahead to how a future rise will impact. But for now, a hold gives the market room to keep moving."
Jeremy Batstone-Carr, European strategist at Raymond James Wealth Management, commented: “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 Breeden added her name to the list of those fearing growing price pressures.
“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.”
Edward Allenby, senior economist at Oxford Economics, added: “Most MPC members appear content with holding policy at its current restrictive level as they wait for more information about how the energy shock is feeding through to the economy.
"More significant than April’s interest rate decision will be how the Committee use their individual paragraphs and a new set of scenarios to signal whether support for a hike over the next 3-6 months is likely to emerge. Oxford Economics’ baseline forecast assumes Bank Rate will remain on hold for the rest of the year.
“The Committee will have more information about how the energy shock is feeding through to the economy by the end-July meeting. The MPC will also update its forecast then, so, unless inflation expectations rise very sharply in the near term, the July meeting is likely to be the next time there will be genuine jeopardy around the monetary policy decision.”
