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According to the latest data, the Bank of England's (BoE) Monetary Policy Committee reached a unanimous 9-0 consensus in the first quarter of 2026 (March meeting) to maintain the benchmark interest rate at 3.75%, completely unchanged from the previous level. This marks the third consecutive hold since cutting the rate to 3.75% at the end of 2025. Prior to this, the market widely expected the central bank to continue its rate-cutting pace in the spring, but as the geopolitical situation in the Middle East deteriorated sharply, analyst consensus has completely shifted to supporting the central bank in keeping rates unchanged in the short term to cope with the sudden inflation shock.
In terms of data details and macroeconomic performance, inflation and employment figures present a complex tug-of-war. The annual growth rate of the headline Consumer Price Index (CPI) in February still reached 3.0%, above the central bank's 2% target; meanwhile, affected by the Middle East conflict, international oil prices and European natural gas prices surged nearly 60% in the short term, which is expected to push inflation up to around 3.5% over the coming quarters. On the other hand, the UK's domestic economic momentum is showing signs of fatigue, with the unemployment rate climbing to a five-year high of 5.2%. However, private sector wage growth expectations were still slightly revised up to 3.6%, indicating that internal cost pressures have not fully subsided.
Regarding this decision, Bank of England Governor Andrew Bailey explicitly pointed out that the Middle East war has driven up global energy prices, bringing a "new shock" to the UK economy. Alpesh Paleja, Deputy Chief Economist at the Confederation of British Industry (CBI), also stated that this wave of imported inflation, caused by supply chain bottlenecks and energy prices, is likely to delay the timeline for the UK to return to its 2% inflation target by nearly a year. The central bank's current strategy is to "buy time," pausing rate cuts to observe whether high energy costs will trigger a second-round effect on corporate pricing and wages among workers.
Looking ahead to the short term (1-2 months), the Bank of England is expected to maintain a highly vigilant wait-and-see stance, with expectations that the rate decision at the end of April will remain unchanged. Policy focus will be locked on the recovery progress of energy supply chains and changes in household inflation expectations. In the medium term (3-6 months), the risks facing the market are shifting sharply: if energy prices remain high, the futures market has even begun pricing in the extreme scenario of resuming rate hikes within the year. However, considering that high borrowing costs are weakening the real economy and housing market demand, most institutions still lean towards believing that the central bank will maintain the 3.75% interest rate until the end of 2026 or even longer, walking a difficult tightrope between fighting inflation and preventing recession.
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