In an unusually unanimous decision, the Bank of England’s Monetary Policy Committee (MPC) voted on 18 March 2026 to hold the base rate at 3.75% — pausing what had been an expected path of further cuts, as the Middle East Crisis rewrites the economic outlook for the UK and beyond.

A Unanimous Vote in Uncertain Times

Unanimous MPC decisions are rare. The fact that all members agreed to hold reflects the scale of uncertainty currently facing rate setters. The committee’s primary concern is the unfolding regional crisis in the Middle East, which has sent oil and gas prices up by 60% with no clear resolution in sight.

The core problem is one of supply, not demand. Energy price shocks of this kind feed directly into inflation — but interest rates are a blunt instrument that cannot fix a geopolitical disruption. As Governor Andrew Bailey put it:

“Monetary policy cannot reverse this shock to supply. Its resolution depends on action taken at its source to restore the safe passage of shipping through the Strait of Hormuz.”

The Inflation Risk the MPC Is Watching

The Bank was on course to cut rates twice in 2026, but those expectations have now been reversed. Markets are currently pricing in up to two rate rises this year instead — a dramatic shift that reflects how quickly the economic backdrop has changed.

Bailey’s concern goes beyond the immediate price shock. A prolonged disruption to oil, gas, fertiliser and other commodities creates a sustained upside risk to inflation. He also flagged that the recent lived experience of high inflation may make households and businesses more reactive to a new inflationary episode — potentially amplifying its effects.

The Bank has made clear it stands ready to act if inflation risks become more persistent. For now, the watchword is patience.

What This Means for Mortgages and Borrowing

The effect on the mortgage market is already visible. Average mortgage rates have risen by over 40 basis points, moving from 4.78% to 5.20% according to Moneyfacts data. For anyone approaching a remortgage, the arithmetic has changed meaningfully in a short space of time.

Those on tracker or variable rate mortgages will be watching closely. Fixed rate deals that seemed uncompetitive just a few months ago may now look more attractive as a hedge against the possibility of further rises.

The Wider Economic Backdrop

The oil shock arrives at a difficult moment. Key indicators are pointing in the wrong direction across several fronts:

• Inflation remains above the 2% target, and the energy shock adds fresh upside pressure
• Real wage growth is running at just 0.5% in real terms — barely ahead of inflation
• Unemployment is rising, with the labour market still under strain
• GDP growth remains weak, with the OBR having already downgraded the 2026 forecast to 1.1%

The combination of stagnant growth and rising inflation — sometimes called stagflation — is the scenario central banks fear most, because it leaves little room to manoeuvre. Cutting rates risks stoking inflation further; raising them risks deepening the economic slowdown.

What This Means for Long-Term Financial Plans

For most people, the most important response to rate uncertainty is not to react sharply, but to ensure plans are robust enough to absorb it. A few principles worth keeping in mind:

• Mortgage holders nearing a fixed rate expiry should review options promptly, as further rate rises could narrow the available choices
• Savers may benefit from locking in competitive fixed-rate savings deals before the picture becomes clearer
• Investors should be cautious about short-term portfolio decisions driven by headlines — volatility tends to create opportunity as well as risk over longer time horizons
• Pension savers with long time horizons are generally best served by holding course and focusing on contribution levels rather than market timing

In Summary

• The MPC unanimously held the base rate at 3.75% on 18 March 2026, citing the Middle East energy crisis
• Oil and gas prices are up 60% since the onset of the conflict, directly threatening UK inflation
• Markets have swung from pricing two cuts in 2026 to potentially two hikes — a significant reversal
• Average mortgage rates have already risen from 4.78% to 5.20% in response
• Real wage growth is only 0.5% and GDP growth remains weak, creating a difficult balancing act for the Bank
• Patience and plan resilience matter more right now than reactive financial decisions

The MPC has chosen to wait and see — and for most households reviewing their finances, a similar discipline is likely to serve them well.