Bank of England Keeps Interest Rate at 3.75% as Inflation Remains Above Target

The Bank of England held the UK base rate at 3.75% on 19 March, with all nine Monetary Policy Committee members backing the decision to keep borrowing costs unchanged. The figures show inflation currently sits at 3% – still a full percentage point above the Bank’s 2% target.

The unanimous vote represents a notable change from February’s split decision, when the committee voted 5-4 to hold rates steady, with four members pushing for an immediate cut to 3.5%. This shift suggests growing caution among policymakers about cutting rates too quickly even as inflation pressures persist.

The Journey Down From Peak Rates

Data shows the current 3.75% rate remains well below the 5.25% peak reached in 2024, following a series of cuts over the past 18 months as inflation gradually cooled from much higher levels. Yet the Bank’s expectations for inflation to return to the 2% target during spring 2026 haven’t materialised as quickly as hoped.

Policymakers have expressed particular concern about wage growth and services inflation, which remain stubbornly above desired levels despite the overall consumer price index declining. Recent oil price volatility and geopolitical tensions, including the Iran conflict, have created fresh uncertainty over energy price inflation – a key factor in the Bank’s rate-setting calculations.

Market Expectations Shift

Financial markets had previously anticipated a rate cut in March but repriced expectations due to energy price pressures. Most forecasters now expect just one or two cuts by the end of 2026, likely taking rates to somewhere between 3.25% and 3.5%.

The disinflation process remains incomplete according to Bank guidance, with officials continuing to assess economic data before making their next move. Andrew Bailey and his colleagues appear determined to avoid premature rate cuts that could allow inflation to become entrenched above target.

Key Takeaways

• All nine MPC members voted to keep rates at 3.75%, contrasting with February’s 5-4 split decision
• UK inflation remains at 3%, still one percentage point above the Bank’s 2% target
• Energy price volatility from geopolitical tensions has complicated the inflation outlook

What This Means for Kent Residents

Mortgage holders across Kent will see their borrowing costs remain unchanged, providing some certainty for household budgeting on variable-rate products. Savers continue to benefit from returns linked to the 3.75% base rate, though these remain modest by historical standards. Kent businesses can plan with greater confidence knowing rates will stay stable in the near term, though persistent inflation concerns mean operating costs could continue rising – especially affecting cross-Channel traders and port businesses dealing with energy price uncertainty.