LONDON (AP) — The Bank of England on Thursday kept its key interest rate unchanged at 3.75% following a sharp rise in oil and gas prices as monetary policy kicks in. iran war There are renewed concerns about inflation.
The decision had been widely expected since the United States and Israel began bombing Iran less than three weeks ago. All nine members of the Monetary Policy Committee voted in favor of keeping borrowing costs unchanged, the first unanimous decision in more than four years.
Before war broke out on February 28, it was almost certain that the Bank of England would cut interest rates, as British inflation was expected to fall towards its 2% target in the coming months. At last month’s interest rate meeting, four out of nine policymakers voted in favor of lowering interest rates.
“We have left interest rates unchanged at 3.75% as we assess how the situation develops,” Bank Governor Andrew Bailey said. “No matter what happens, our job is to ensure that inflation returns to our 2% target.”
The Iran war has significantly upended not only the Bank’s forecasts, but also broader global economic forecasts, particularly in terms of its impact on prices.
The longer the war with Iran continues, and the more Iran is shut down as a result, Strait of Hormuz The longer this continues, the greater the economic pain will be. One-fifth of the world’s crude oil passes through this strait.
The most concrete impact was oil and gas marketprices have risen sharply since the war began. Prices soared again on Thursday after Iran stepped up attacks on oil and gas facilities around the Gulf, including Qatar’s Ras Laffan, the world’s largest liquefied natural gas export facility, in retaliation for Israel’s attack on a key Iranian gas field.
“Wars in the Middle East have increased global energy prices,” Bailey said. “We are already seeing this at the petrol pumps and if this continues it will lead to higher utility bills for households later this year.”
These new inflationary pressures creeping into the global economy are forcing central bankers to reassess their 2026 forecasts for both inflation and growth. In response to the previous energy price shock related to Russia’s full-scale invasion of Ukraine, central banks have generally been cutting interest rates in recent years.
On Wednesday, the U.S. Federal Reserve also maintained key interest rates And he warned of an increasingly uncertain outlook. european central bank The governor also maintained interest rates, saying the Iran war made the outlook “significantly uncertain.”
For the Bank of England, this is likely to mean that inflation will not fall to its 2% target as quickly as expected, leading to higher prices for the rest of the year, and will not provide a backdrop for further interest rate cuts in the near future.
Following Thursday’s unanimous decision and Mr Bailey’s harsh words, financial markets are indeed moving to price in higher UK interest rates this year.
“Simply put, higher interest rates are now a real risk to the economy,” said Sanjay Raja, chief UK economist at Deutsche Bank.
Keeping interest rates higher than they should be helps keep inflation in check. High interest rates strain the economy by making it more expensive for businesses and consumers to borrow, which in turn depresses economic activity and, as a result, increases price pressure.
