The Bank of England’s nine interest rate-setters voted unanimously to keep borrowing costs on hold in the face of inflation risks from the war in the Middle East, and some raised the prospect of raising rates.
The Bank of England’s Monetary Policy Committee (MPC) announced a 9-0 vote to maintain the Bank Rate at 3.75%, defying expectations of a split decision among economists. Staff forecasts cited by the central bank suggested that inflation could climb to as high as 3.5% over the next two calendar quarters if energy prices remain elevated.
Governor Andrew Bailey said petrol prices were already up, and household energy bills could rise later this year if the conflict in the Gulf continues. “We have held interest rates at 3.75% as we assess how events unfold,” he said. “Whatever happens, our job is to make sure inflation gets back to its 2% target.”
Some MPC members indicated a readiness to act if inflation pressures intensify. Catherine Mann said the Bank might need to consider a longer pause or even a rate hike to prevent inflation from becoming entrenched. Chief Economist Huw Pill, who opposed the most recent rate cuts, said he was “ready to act” if energy price shocks pushed inflation higher over the medium term.
Conversely, Alan Taylor, a long-time advocate of rate cuts, said the decision should not be seen as a pivot toward hikes. “Given massive uncertainty around energy prices, I currently see a high bar to hiking,” he said. The committee added that it would have more information by its next meeting in late April to better assess developments and risks.
The pause reflects the Bank’s cautious approach as Britain faces both higher energy costs and fragile economic growth. Analysts warn that inflation could rise to 4–5% if oil and gas prices continue climbing, though this is far below the 11.1% peak seen in 2022 after Russia’s invasion of Ukraine.
Data published earlier today showed that British wages grew at their slowest pace since late 2020, a potential easing factor for inflation pressures. However, fresh regional survey data suggest that pay settlements in 2026 may exceed forecasts, keeping the Bank alert to inflation risks.
Investors had anticipated rate cuts earlier this year, but the latest Middle East energy developments have shifted market expectations toward a potential hike by year-end, with a second increase also possible. Most economists, however, expect only a temporary pause in the Bank’s run of rate cuts, rather than a full return to tightening, given the economy’s delicate state.
The BoE’s stance mirrors actions by other central banks worldwide. The U.S. Federal Reserve held rates steady last night, projecting a single reduction in borrowing costs this year while warning that uncertainty remains high.
