The Bank of England could come under pressure to raise the base rate to control inflation when it next meets in two weeks' time.
5th Mar 20260 2,784 1 minute read David Callaghan
War in the Middle East may force the Bank of England to raise interest rates, economists warn, in a move that could have major impact on the housing market.
Inflation fell to 3% in January from 3.4% in December, but could be forced up by rising oil prices, putting pressure on the Bank to increase the base interest rate to 4% or higher.
The Bank held the rate at 3.75% last month, and next makes a decision in two weeks’ time.
Reduction unlikelyEconomists at the influential Institute for Fiscal Studies (IFS) say a higher rate may be needed to keep inflation in check, the Daily Telegraph reports.
Ben Zaranko, Associate Director, IFS
Ben Zaranko, Associate Director at the IFS, said he would not “rule out” a rate rise to 4%, and a reduction is now looking unlikely.
“If you look just yesterday, the financial markets stopped pricing in a rate cut in March, so in the short term what we might see is: rather than rates go up it might just mean rate cuts we might otherwise have experienced don’t happen.”
Traders bettingAnd the National Institute of Economic and Social Research (NIESR) said inflation would increase by 0.7% this year, and interest rates would rise by 0.8%, plus a further 0.4% in 2027.
City traders are now betting on only a 27% chance of an interest rate cut this month, compared with 86% on Friday.
In this week’s Spring Statement, Chancellor Rachel Reeves said the Government was on course to see inflation fall towards the Bank’s 2% target.
Figures from the Office for Budget Responsibility (OBR) that were released to coincide with the statement, predicted inflation would fall to 2.3% in 2026, returning to the 2% target late this year.
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TagsBank of England base rate mortgage rate 5th Mar 20260 2,784 1 minute read David Callaghan Share Facebook X LinkedIn Share via Email
