BoE Holds Rates Amid Iran Risks

The Bank of England voted 8–1 to keep Bank Rate unchanged at 3.75% in April 2026, with one member preferring an increase to 4% and several policymakers indicating they could consider additional rate increases in the future. Policymakers highlighted that the conflict in the Middle East has created significant uncertainty for global energy prices. While monetary policy cannot directly influence them, the Committee aims to ensure any inflationary impact feeds through in a way consistent with the 2% target over the medium term, with outcomes dependent on the scale and duration of the shock and how it spreads through the economy. CPI inflation has risen to 3.3% and is expected to move higher later in the year as energy costs pass through, raising the risk of second round effects in wages and pricing. However, a loosening labour market and weaker growth may help contain inflation pressures, while tighter financial conditions since the conflict began are also expected to dampen demand.

The Bank of England is widely expected to keep interest rates unchanged at 3.75%, as policymakers grapple with heightened uncertainty stemming from the ongoing Iran conflict and its inflationary impact. Governor Andrew Bailey and the Monetary Policy Committee are likely to resist any immediate policy shift, instead focusing on scenario analysis to assess how a prolonged energy shock could affect growth, jobs, and price stability. Rising oil and gas costs have disrupted the prior disinflation trend, with evidence mounting that higher input prices are feeding through to consumers. While markets have flirted with pricing in rate hikes, most economists expect a cautious hold, reflecting limited clarity on the duration of the shock and still-fragile labour market conditions. Communication will be key after March’s market volatility, with officials expected to strike a more balanced tone, acknowledging upside inflation risks while avoiding signals that could trigger another sharp repricing.

The Bank of England unanimously voted to keep the Bank Rate at 3.75% in March 2026, as the conflict in the Middle East has caused a sharp rise in global energy and commodity prices, pushing up household fuel and utility costs and raising business expenses. Prior to this shock, domestic prices and wages had been showing continued disinflation. The MPC is closely monitoring the risk of second-round effects on wages and prices, which could increase the longer energy costs remain high. Recent data showed headline inflation at 0.1% in February, with medium-term pressures largely unchanged. Higher energy prices are expected to push CPI to between 3% and 3.5% over the next few quarters, though a slowdown in economic activity from rising costs could limit second-round effects. The Committee will continue to assess developments in the Middle East and global markets, ready to adjust policy as needed to maintain price stability and support sustainable growth.