Interest rates held at 3.75% but Bank warns Iran war could mean future hike

Chris Cheverall, head of UK at CMC Markets, said: “The decision to hold rates at 3.75 per cent should not be mistaken for an all-clear on inflation. The 6–3 vote shows there remains a meaningful divide within the MPC, with pressure for tighter policy still firmly on the table.

“The backdrop of elevated energy prices and the subsequent feed-through into other areas of the economy, mean further rate hikes cannot be ruled out. Inflationary pressures cannot simply be written off as transitory, particularly while the energy outlook remains so uncertain.

“The cost of higher-for-longer rates is already being felt by consumers, with tighter borrowing conditions increasing pressure across household and corporate finances. The FTSE 100 has proved relatively resilient against that backdrop, helped by its international earnings and exposure to sectors including energy, mining, healthcare and banking.

“For sterling, the Bank’s guidance will now be critical. Against a more hawkish Federal Reserve backdrop, a cautious tone from the Bank could weigh on the pound, while a stronger signal that further tightening remains possible could provide some support.

“For markets, the question is no longer simply whether the Bank held today, but whether policymakers believe current inflation pressures will fade or ultimately require a more restrictive stance. The guidance from here will be just as important as today’s headline decision.”