Chancellor responds to BoE interest rates decision + other reactions

A statement from Chancellor of the Exchequer Rachel Reeves in response to today's interest rates decision by the Bank of England. 

Chancellor of the Exchequer Rachel Reeves said: 

“The war in the Middle East is not our war, but it is one we have to respond to. 

“Every choice I make will be about keeping costs down for families and businesses, without repeating the mistakes we've seen in the past that resulted in higher inflation and higher interest rates.  

“We entered this conflict in a stronger position because of the choices this government took to build economic stability, and we are going further to take back our energy security, backing British industry and protecting households, to build a Britain that is stronger, more resilient, and prepared for the future.” 

Notes to editors

• Public Sector Net Borrowing (PSNB) was £19.8 billion lower in 2025-26 compared to 2024-25.  

• We have increased our headroom against the stability rule to £23.7bn so that we can weather shocks and keep borrowing costs down. 

• We are set to reduce the deficit by £20bn from 24-25 to 25-26 - from 5.2% to 4.3% of GDP.   

• The IMF also expects the UK's deficit to fall in every year between 2025 and 2031, falling to the joint-lowest level (with Canada) in the G7 by 2029 - showing we have the right economic plan. 

Conservative Party

Sir Mel Stride MP, Shadow Chancellor, said:

“Rachel Reeves has weakened our economy and left us vulnerable in the run up to the latest energy crisis. The conflict in the Middle East is pushing up prices - but the UK already had the highest inflation in the G7 thanks to Labour's choices.

“Tax hikes, reckless spending and disastrous energy policies have paved the way for high inflation and interest rates staying higher for longer. We need a different approach: cutting the benefits bill, lowering taxes and drilling in the North Sea. We need to Get Britain Working Again.”

ENDS

Notes to Editors

The economy was weak before the conflict in Iran: 

• The Office for Budget Responsibility (OBR) halved the growth forecast for 2026. In March 2025, the OBR forecast growth of 1.9 per cent in 2026. In March 2026, the OBR revised the growth forecast to 1.1 per cent (OBR, Economic and Fiscal Outlook, 3 March 2026, link).

• Inflation was above target, having remained above the Bank of England's target for seventeen months. Having inherited inflation bang on the 2.0 per cent target, new figures show it rose by 3.0 per cent in the 12 months to February 2026, meaning inflation has exceeded the Bank of England's target every month since Labour's first Budget (ONS, Consumer Price Inflation, UK: February 2026, 25 March 2026, link).

• Borrowing reached its highest level since 2010, outside the pandemic, meaning annual debt interest payments are forecast to hit £140 billion. Rachel Reeves promised not to ‘fiddle the figures' but at her first Budget, she announced a new fiscal rule meaning borrowing is expected to reach 97.3 per cent of GDP by 2030-31, the highest level seen outside the pandemic since 2010, with annual debt interest payments forecast to be £137.1 billion in 2030-31 (OBR, Economic and Fiscal Outlook, 3 March 2026, link; Treasury, Autumn Budget 2024, 30 October 2024, link; Bloomberg, 3 November 2023, link; Philip Aldrick, X, 3 August 2024, link).

• The Bank of England noted that the conflict in the Middle East came when ‘growth was below potential' and there is ‘spare capacity' – for example, high economic inactivity – in the economy. ‘In contrast to the energy price shock in 2022, this shock was occurring at a point when growth was below potential and the economy was operating with a margin of spare capacity' (Bank of England, Monetary Policy Summary, March 2026, 19 March 2026, link).

• Andrew Bailey said the ‘recent experience of high inflation' make Britain ‘more sensitive to a new inflationary shock'. BAILEY: ‘The recent experience of high inflation may also make households and businesses more sensitive to a new inflationary shock' (Bank of England, Monetary Policy Summary, March 2026, 19 March 2026, link).

CBI

Alpesh Paleja, Deputy Chief Economist, CBI, said:   

“It is no surprise that the Bank of England has kept interest rates on hold, given expectations of a near-term rise in inflation. Prior to the escalation in the Middle East, the Monetary Policy Committee had been widely expected to cut rates further – but that now looks unlikely. 

“That said, the MPC is navigating two-sided risks to inflation. Fuel prices and input costs have spiked, as reflected in our business surveys. Some measures of households' inflation expectations have also moved higher, raising the risk of renewed knock-on effects on wage and price setting that could keep inflation above target for longer. 

“However, this is not a repeat of the 2022–23 inflation shock. The labour market is now looser and there is greater slack in the economy, which should keep a lid on both wage growth and domestic price pressures – though the extent of that effect remains uncertain. 

“Ultimately, different members of the MPC are placing varying weight on these competing forces. How they evolve in the months ahead – particularly alongside developments in the conflict – will be key in shaping the path for monetary policy. With uncertainty still high, the MPC is likely to remain on hold for some time yet.” 

SNP

Commenting on the news that UK interest rates will be kept at 3.75%, and could increase in the months ahead due to rising UK inflation, SNP Economy spokesperson Dave Doogan MP said:

"This is bad news for mortgage holders, first time buyers, and people with credit cards and loans, who desperately want to see the cost of borrowing fall.

"With the UK facing a cost of living emergency, it is a disgrace that the Labour government is sitting on its hands doing nothing to help families as prices rise.

"There are real fears that interest rates and mortgage rates could rise again in the coming months, and prices will become even more unaffordable, as the cost of food and fuel soars to new heights.

"While John Swinney's SNP government is laser-focused on helping families by lowering bills, and delivering the strongest cost of living package in the UK, the Labour government is completely distracted by the Peter Mandelson scandal and isn't lifting a finger to help hard-pressed households.

"It shows why it's vital to vote SNP on 7th May to prioritise the cost of living and secure a fresh start with independence, so we can use Scotland's huge energy wealth to lower bills."