Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.
The Bank of England held rates at 3.75% in March after the outbreak of conflict in the Middle East caused sharp increases in some commodity prices.
As fighting has escalated, bond markets have flipped from predicting rate falls to now suggesting the next move for rates will be upwards, with as many as three quarter-point cuts this year being priced in.
Prior to the action taken by Israel and the United States at the end of February, the UK bond market was pricing in a near-certain cut to the Bank of England rate in March to 3.5% - and then at least another quarter-point cut before the end of 2026.
However, the prospect of a March rate cut looked doubtful as soon as fighting broke out. Bond markets have been pricing in a reducing chance of a quarter-point cut since then and now predict multiple rate rises this year.
Disruption to oil and gas supplies in Iran and neighbouring countries, and the closure of a key shipping route through the Straits of Hormuz, have resulted in spiking global commodity prices. This is expected to force headline inflation higher.
The Bank uses higher interest rates as a tool to lower inflation. While higher UK borrowing costs will not affect global energy markets, the Bank is wary that higher costs for energy will bring about ‘second-round’ effects - where UK workers demand higher wages to pay for the higher cost of living and inflation becomes ingrained. This is what happened the last time global prices spiked following Russia’s invasion of Ukraine in 2022.
The Bank’s Monetary Policy Committee (MPC) voted 9-0 to hold rates in March. It warned that disruption to energy markets would take several months to correct - even if there is a swift resolution to the fighting. Beyond the Middle East conflict, UK economic data has been generally supportive of interest rates falling.
Unemployment remained at 5.2% in the three months to January, a five-year high, while wage growth slowed in the same period to 3.8% for regular earnings (excluding bonuses) and 3.9% for total earnings (including bonuses).
This extra ‘slack’ in the labour market makes it arguably less likely that high energy prices will translate into higher ingrained inflation.
Official Consumer Price Index (CPI) inflation for January came in at 3%, sharply down from 3.4% in December.
Markets are now pricing in slightly faster rate cuts this year, and then potential rate rises next year.
The next central bank meeting is scheduled for 30 April 2026 followed by meetings on:
- 18 June 2026
- 30 July 2026
- 17 September 2026
How rates have changed
The path ahead for interest rates, as implied by market prices, has changing significantly following the outbreak of the conflict in the Middle East.
The chart below shows the implied level of interest rates from 19 March, 2 March and 16 February 2026. This is based on market prices for government bonds with different lengths of maturity.
The chart below shows the implied level of interest rates from 19 March, 2 March and 16 February 2026. This is based on market prices for government bonds with different lengths of maturity.
The most recent reading (in yellow) shows that markets now see the next movement in rates as being upwards, reaching 4.5% over the next 12 months - that would imply three quarter-point rate rises from here. The previous readings show how the implied path for rates until the end of February - and the start of the conflict - had been downwards.
Will mortgage rates fall?
As a general rule, if the Bank of England moves interest rates then mortgage rates tend to follow. Ultimately, however, it is up to lenders to decide the rates they offer and changes to mortgage deals can often run ahead or behind changes in the Bank rate.
Mortgage rates jumped in line with the rising expectations for rates in the coming year. As recently as 3 March 2026, the best rate on a five-year fixed rate mortgage was 3.75% but this has now climbed to 4.19%1. Reports from the mortgage market suggest that many of the best deals have been pulled from sale.
Will cash savings rates fall?
The rates you see on cash savings are set by account providers who compete with each other to win savers’ deposits. While not directly linked to movements in the Bank of England rate, they do tend to correlate with it.
A feature of the current savings markets is that many providers add in conditions which potentially reduce the rate you get over time, Many of the highest-paying accounts include an element of interest which is temporary and will fall out after six months or a year. Alternatively, you may lose several months interest if you withdraw money from the account.
Currently, the highest interest is being paid on Cash ISA accounts. As of 3 March 2026, the best rate on a Cash ISA which allows easy access to your money is 4.68%2.
Cash options - the best ways to save
There are a number of potential homes for money if you decide to hold it in cash.
It makes sense to shield your cash returns from tax if you can, which means using part of your £20,000 annual ISA allowance to hold cash. Cash ISAs do this job - although any allowance you use for cash cannot then be used for investments.
Non-ISA cash accounts also exist but returns are potentially subject to tax at your rate of income tax, subject to certain allowances.
For this reason, some savers choose Premium Bonds, where there is no guaranteed rate of interest but monthly prizes are paid instead. Prizes are tax-free but the rates of return on Premium Bonds have also been falling. Moreover, you have to have above average luck in order to get those rates.
An increasingly popular cash option is to move cash savings to an investment account but utilise assets which produce a cash-like return while rates remain somewhat attractive. That would allow you to take advantage of above-inflation returns from cash while it lasts, but also leave you ready to switch to investments if and when that suits you.
Cash funds or money market funds held inside investment accounts can do this job. The Fidelity Cash Fund is the best-selling cash fund on the Fidelity Investing platform.
- Read more about the Fidelity Cash Fund
Fidelity: current interest rates we pay on cash
Here are the current interest rates we pay on cash held in our accounts. This includes our -
- Stocks and Shares ISA (including Junior ISA)
- Investment Account
- Cash Management Account
- Self-Invested Personal Pension (SIPP) (including Junior SIPP)
Please note that interest rates can be changed at any time and the rates below have been applied since 1 January 2026.
| Account | Gross rate of annual interest | Annual Equivalent Rate (AER) |
|---|---|---|
| ISA (including Junior ISA) | 2.20% | 2.22% |
| Investment Account | 2.20% | 2.22% |
| Cash Management Account | 2.20% | 2.22% |
| SIPP (including Junior SIPP) | 2.20% | 2.22% |
Source:
1 London & Country, 18 March 2026
2 MoneySavingsExpert 18 March 2026
Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. An investment in a money market fund is different from an investment in deposits, as the principal invested in a money market fund is capable of fluctuation. Fidelity's money market funds do not rely on external support for guaranteeing the liquidity of the money market funds or stabilising the NAV per unit or share. An investment in a money market fund is not guaranteed. The value of shares may be adversely affected by insolvency or other financial difficulties affecting any institution in which the Fund's cash has been deposited. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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