The shift in sentiment has been striking. A poll of UK brokers published by Mortgage Introducer found the majority now expected rate hikes rather than cuts before year-end. Financial markets have since shifted from pricing in rate cuts to pricing in between two and three quarter-point increases, which would push five-year fixes towards 6%. Monday’s breakdown hardens that outlook further.
Bank of England caught in an impossible position
UK Consumer Prices Index inflation stood at 3.3% in the 12 months to March 2026 — above the Bank’s 2% target — and on 30 April 2026, the Monetary Policy Committee voted eight to one to hold the base rate at 3.75%, with one member already voting to increase it to 4%. The next MPC decision falls on 18 June 2026.
The conflict has created a cost-push inflation shock in which prices rise not because demand is strong but because production has become more expensive — a scenario in which raising rates to combat inflation risks deepening an economic slowdown simultaneously. A complete Hormuz closure would intensify that dilemma. When the MPC held rates at 3.75% in April 2026, it flagged inflation staying above target for the remainder of the year.
Markets now expect the base rate to rise — potentially multiple times — to as high as 5.25% by the end of 2026, a big reversal from earlier expectations of several cuts.
The best-case scenario — oil falling back to $70–75 per barrel and the Bank of England cutting rates in Q2 or Q3 2026, pulling two-year fixed rates back towards 4.5–4.75% — now looks significantly less likely.