Will Bank of England have to raise its base rate next week?

Hopefully the Bank will hold its nerve next week and ‘see what happens’ as they usually do. This may just me a temporary spike which will settle, if not a further assessment can be made next time around based on more accurate data.

It's too early for the Bank of England to make a decision based on the conflict thus far, with promises of a quick resolution still promised by Trump. Fundamentally, any push on inflation is due to the oil pricing, which has rocketed in the last few days, but can equally fall at the same speed should supply be met elsewhere. This is a real example of how mortgage rates are sensitive to both our economy and worldwide conflict and issues, and that the opportunity to secure rates is so important to borrowers, especially with larger average balances, even a 0.25% change is expensive.

Historically, the Bank of England are followers, not leaders so whilst the Middle East conflict and oil surpassing $100 a barrel has effectively killed hopes for a rate cut on 19 March, chances are the Bank will demure and keep rates unchanged to see what happens in the Middle East and energy prices over the next month before they meet again on 30 April. For UK households, this "higher for longer" stance means mortgage relief is delayed. Lenders have already begun pulling the cheapest fixed-rate deals in anticipation of prolonged higher rates. Conversely, savers benefit as high interest on deposits will likely persist through the spring.

The surge in oil prices creates a difficult dilemma for the Bank of England. Higher energy costs are inherently inflationary because energy feeds into transport, food production and manufacturing. Oil shocks tend to transmit quickly through the wider price structure, meaning inflation expectations can rise again even if policymakers believed the worst had passed. However, the Bank of England is also constrained because the UK is now heavily debt-burdened and financially fragile. Aggressive rate increases risk destabilising government finances and bond markets at a time when growth is already weak. For that reason, any rate rise next week would likely be modest and largely symbolic, aimed at maintaining credibility rather than signalling a new tightening cycle. For UK households the implications are mixed. Mortgage rates may remain elevated if inflation expectations rise, but a weakening economy could limit how far borrowing costs increase.

Andrew Bailey is a cautious man, and although he doesn’t cut rates as quick as he should he won’t raise them either. The next meeting is sure to be a ‘wait and see’ meeting as Trump is as predictable as a roulette table. It was thought the bank would cut rates before the Iranian conflict too hold. The fundamentals looked good and the Uk is in a good position, relative to its peers. This inflation shock also wouldn’t be demand driven and, naturally, higher energy bills will restrict discretionary spending. The bank certainly shouldn’t raise rate, even if this is a protracted conflict.

Mortgage rates moving back towards 5% shouldn’t surprise anyone who understands how the markets actually work.
Five-year swaps hit a one-year high, lenders repriced, headlines panic, we’ve seen this movie before, and it nearly always starts worse than it finishes.

Yes, inflation is likely to tick up again with energy and fuel prices rising due to global conflict, and that’s exactly why the markets have reacted.
But markets pricing in a rate rise doesn’t mean the Bank of England will actually pull the trigger. They won’t.

The Bank knows the housing market is fragile, confidence is thin, and the last thing they can afford right now is another rate shock hitting millions of homeowners.
Last time rates moved too far too fast, the market nearly seized up overnight.

When Trump dropped his first bomb on Iran, it blew up all hope of a rate reduction this month.
A few weeks ago, a cut to base rate looked nailed on. But the ever cautious committee will look at global events and hold fire. An increase at this stage would be unjustified, but we will wait and see what happens to inflation as energy prices look to soar.

The Bank of England will likely hold the base rate at 3.75% on March 19th. Raising rates now could over-tighten an economy already cooling under high energy costs, risking a deep recession. The MPC prefers a "wait and see" approach to ensure this spike isn't transitory.
However, the market isn't waiting. Five-year swaps are at year-highs, making a jump in average mortgage rates above 5% this week feel inevitable. The era of sub-4% deals has evaporated as lenders reprice for a "higher-for-longer" reality. Savers benefit from steady yields, but borrowers face immediate pain. Meanwhile, Rachel Reeves is reportedly on G7 zoom calls, checking who "hoarded the oil sweets" to secure Blighty’s supply...great work Rachel.

We imagine the bank is more likely to hold given the uncertainty, which will be a shift from the expected cut.