South African expats heading into the Easter break this week will find little comfort in the UK interest rate outlook.
The Bank of England held rates at 3.75% at its last meeting on 19 March, and the next scheduled MPC decision will be announced on 30 April 2026.
The March decision was unanimous, with all nine members voting to hold.
The Bank cited the conflict in the Middle East as having caused a significant increase in global energy and commodity prices, which will affect households’ fuel and utility prices and push up business costs.
‘Backward-looking figure entirely misses the inflationary shockwaves’
“The UK’s seemingly stable inflation data masks a rapidly deteriorating forward-looking reality. While the Office for National Statistics reported a reassuringly flat 3.0% CPI for February, this backward-looking figure entirely misses the inflationary shockwaves of the escalating Middle East conflict,” said Terence Hove, Senior Financial Markets Strategist at Exness.
“The market’s anticipation of an imminent rate cut is now severely challenged by surging global energy costs.
“In fact, projections from the National Institute of Economic and Social Research suggest that if this energy shock persists, interest rates might actually need to climb above 4%, completely reversing the expected easing cycle.
“The Bank of England is no longer managing a soft landing but are navigating an unpredictable geopolitical supply shock,” Hove added.
A false flag on inflation
On the face of it, the inflation data released this week looks encouraging. CPI rose by 3.0% in the 12 months to February 2026, unchanged from January. Steady. Predictable. Almost reassuring.
Except it isn’t.
The figures from the Office for National Statistics marked the last reading before the start of the Iran war.
The UK is now expected to see inflation increase once again on the back of global energy price rises.
As one economist put it, February’s unchanged inflation is a “false flag for the economy” as these figures pre-date the energy shock induced by the Middle East conflict.
While inflation should fall next month as a cut to green levies temporarily lowers energy bills, a brutal inflation surge looms, with skyrocketing oil and gas costs likely to lift the headline rate above 4% by the summer.
What happens next?
The National Institute of Economic and Social Research predicts that if the current rise in energy costs were to last for a year, interest rates could climb to 4.5%, based on a scenario where oil and gas prices increase by 30% and 50%, respectively.
That is the hawkish end of the spectrum.
Most economists still expect a cut eventually, but conviction has drained away fast.
The Bank of England is expected to cut interest rates to 3.50% either in April or June, according to economists polled by Reuters, though several were unwilling to specify at which of the two meetings the cut would come.
Oxford Economics has gone further, suggesting rates could remain at their current level until well into 2027, citing elevated global oil and gas prices as the key concern.
What this means for SA expats
For South African expats watching the mortgage market, the picture is frustrating.
Rates had been on a gentle downward path since August 2024, falling by 1.5 percentage points in total.
That progress has now stalled.
Some mortgage lenders have already increased the rates quoted on new mortgage products as a result of developments in the Middle East.
We covered what the base rate means for your mortgage back in February, when a spring cut still looked possible.
That optimism feels a long time ago now.
The Easter break may offer a brief reprieve from the headlines.
But when the Bank of England sits down again on 30 April, the world will look very different to the one those February inflation figures were collected in.
The storm in the Middle East shows no sign of passing, and for now, cheaper borrowing remains on hold.