Bank Rate held at 3.75% amid Middle East conflict and inflation risks
The Bank of England's Monetary Policy Committee voted unanimously to maintain Bank Rate at 3.75% at its meeting ending 18 March 2026. The decision reflects increased global energy prices due to the Middle East conflict, which will raise near-term CPI inflation.
Global shocks challenge inflation outlook
The Monetary Policy Committee (MPC) unanimously maintained Bank Rate at 3.75% at its 18 March 2026 meeting.
A significant rise in global energy and commodity prices, driven by the Middle East conflict, is expected to increase household fuel and utility costs, alongside business expenses.
This external shock will elevate near-term CPI inflation.
The MPC, unable to influence global energy prices, aims to ensure economic adjustment achieves the 2% target sustainably.
It remains vigilant against increased risks of domestic inflationary pressures from second-round effects in wage and price-setting.
The Committee is also assessing the implications of likely weakening economic activity due to higher energy costs and stands ready to act to keep CPI inflation on track.
Energy prices surge, markets tighten
The Middle East conflict has significantly disrupted global energy markets, particularly in the Strait of Hormuz.
Oil prices surged above $100 per barrel, a 60% increase since the February Report and the highest since 2022.
European wholesale gas prices also rose sharply, exceeding €50 per MWh, 60% higher than pre-conflict levels, with UK natural gas futures up 35-40%.
Financial markets reacted with increased volatility, seeing equity prices fall and corporate bond spreads widen.
This led to an increased market-implied path for Bank Rate, tightening overall financial conditions.
A policy tightrope walk
The MPC's unanimous decision underscores the severity of the external energy shock and its immediate inflationary impact.
While global prices are beyond its control, the Committee signals strong vigilance against domestic second-round effects, indicating a readiness to tighten if necessary.
This stance prioritizes medium-term price stability, even as economic activity is likely to weaken from higher energy costs.