As the Bank of England’s Monetary Policy Committee (MPC) prepares to gather on Thursday, 20 March, the anticipation of a cut to the base rate is palpable among economists and financial analysts. The decision of the MPC is heavily influenced by the trends in inflation, which has been notably on the rise since September. It’s essential to understand the nuances and the underlying factors that contribute to this economic scenario and the possible outcomes of the MPC's forthcoming meeting.

Inflation, a critical economic indicator, has been climbing steadily. In September, inflation fell below the target rate of 2.0%, reaching 1.7%. However, this downward trend was short-lived. Since then, inflation has been on an upward trajectory, surpassing forecasts. Last month, it grew beyond the predicted 2.8%, reaching a concerning 3.0%. Several factors are propelling inflation upwards, the most significant of which include wages increasing at a rate faster than inflation and robust consumer demand amidst a lower supply. This phenomenon of price hikes in goods and services due to high demand and constrained supply has been a driving force behind the rising inflation.

Global uncertainties also play a pivotal role in shaping inflation trends. The ongoing conflict between Ukraine and Russia, for instance, has created a ripple effect, exacerbating inflation pressures. The geopolitical instability caused by the war has led to disruptions in supply chains, increased energy prices, and heightened market volatility, all of which contribute to the inflationary environment.

The MPC has been actively responding to these inflation trends with adjustments to the base rate. In August 2024, the committee implemented a cut to the base rate, marking the first reduction since March 2020. This was followed by another cut in November, and subsequently, one in February 2025, which brought the rate down to 4.5% from the previous 5.25% 16-month high before the August 2024 cut. These decisions reflect the MPC’s strategic efforts to balance economic growth and inflation control.

As the March meeting approaches, there is widespread expectation among analysts that the MPC will opt to hold the base rate steady. This decision is particularly significant as there is no MPC meeting scheduled for April, meaning the March decision will remain in effect until the next gathering set for May. The forecasts for May and November are optimistic, with potential further reductions in the base rate predicted. If the forecasts hold true, the current low lender rates are expected to remain available on the lending market until the MPC's decision in May, providing a window of opportunity for borrowers.

For borrowers, this is an encouraging prospect. The market has seen the release of new mortgage and remortgage products with lower rates, a sign that lenders are confident in the UK economy’s performance in the upcoming months. This confidence among lenders translates into favorable borrowing conditions. Borrowers are thus advised to shop for deals now, as lenders could withdraw their best offers if the MPC remains cautious in May and opts not to cut the rate further.

This scenario is reminiscent of last year, when borrowers who delayed their decision in hopes of even lower interest rates found themselves facing higher rates as lenders pulled back their best offers. The missed opportunity for savings was a harsh lesson for many. Therefore, proactive borrowing decisions in anticipation of the MPC's actions could be financially advantageous.

While the expectation of a cut to the base rate is high as the MPC convenes on 20 March, the decision will be heavily influenced by the rising inflation and global uncertainties. Holding the rate steady seems likely, with optimistic forecasts for further reductions in May and November. For borrowers, the current low rates present an opportune moment to secure favorable lending conditions which could result in substantial savings. By understanding these dynamics and making informed decisions, borrowers can navigate the economic landscape effectively and potentially benefit from the prevailing rates before any adjustments are made by the MPC.