Bank of England holds rates as Iran war clouds outlook

The Bank of England is widely expected to keep interest rates unchanged this week as policymakers assess the economic fallout from the ongoing Iran war and rising energy costs.

After holding borrowing costs steady in March, the central bank is likely to maintain its benchmark rate at 3.75% when it announces its decision on Thursday. Most members of the Monetary Policy Committee will again vote to leave rates unchanged, News.Az reports, citing Reuters.

Despite the expected pause, financial markets are increasingly betting on rate hikes later this year. Investors have already priced in a potential increase as early as July, followed by further moves in the autumn, even as Governor Andrew Bailey has warned against acting too quickly.

The uncertainty stems largely from the economic shock triggered by the Iran conflict, which has driven up global energy prices. The United Kingdom is seen as particularly exposed due to its reliance on natural gas, raising concerns about renewed inflation pressure.

Recent data has added to those worries, showing rising input costs for businesses and a surge in expectations for future price increases. The International Monetary Fund has forecast that UK inflation could climb to around 4% this year, keeping it among the highest in the G7.

Within the Bank of England, views remain divided. Some policymakers fear that delaying action could allow inflation to accelerate again, especially if higher energy costs push up wages and prices across the economy. Others argue that tightening policy too soon could weaken growth and further strain businesses and consumers.

Chief economist Huw Pill has questioned a purely “wait-and-see” approach, warning that hesitation could leave policymakers reacting too late.

For now, the central bank is expected to stick with its cautious stance, signaling that it stands ready to act if inflation risks intensify. Updated economic forecasts due this week are likely to show higher inflation and slower growth in the coming years, underscoring the difficult balancing act facing policymakers.

Investors will closely watch the Bank’s tone and signals after the decision, looking for clues on whether the next move will be a rate hike — or a continued pause in the face of mounting uncertainty.

News.Az 

By Aysel Mammadzada