𝓤𝓷𝓲𝓽𝓮𝓭 𝓝𝓮𝔀𝓼

The Bank of England is poised to keep interest rates on hold as policymakers opt for a cautious approach while weighing up the impact of war in the Middle East on the cost of living.

But experts have said an interest rate increase could remain on the horizon if the conflict continues to put pressure on UK inflation.

Most economists are expecting the Bank’s nine-member Monetary Policy Committee (MPC) to keep rates at 3.75% at the next decision, which will be announced on Thursday at midday.

The MPC will also publish its first full monetary policy report and set of economic forecasts since the conflict between US-Israeli and Iranian forces began in late February.

Last week, a raft of economic data showed the conflict has helped drive inflation higher.

Data published by the Office for National Statistics (ONS) showed UK Consumer Prices Index (CPI) inflation lifted to 3.3% in March, a three-month-high, on the back of accelerating fuel prices.

The price of motor fuels jumped by 8.7% month-on-month – the largest increase since June 2022 – as disruption to oil production and transportation drove diesel and petrol prices higher.

Meanwhile, Bank of England research saw UK firms warn they think food inflation could jump as high as 7% as they increased their inflation outlook for next year.

Other economic data also indicated that activity in the UK economy has been stronger than expected.

The ONS reported the UK economy grew by 0.5% in February, ahead of forecasts of 0.1%, before the conflict began.

Elsewhere, UK retail sales volumes were stronger-than-expected after a boost from fuel, with motorists buying more in March in a bid to stock up amid rising prices.

Despite these figures, economists broadly expect the Bank’s rate-setters to maintain the current interest rate.

Oxford Economics chief UK economist Andrew Goodwin said: “We expect the MPC to keep bank rate unchanged at 3.75%, with most committee members seemingly keen to hold policy at its current restrictive level as they gather more information about how the energy shock is feeding through to the economy.

“Nevertheless, we suspect a minority will opt for a 25 basis point (0.25 percentage point) hike, on the basis that some pre-emptive tightening is a more robust strategy to guard against an inflation outlook where the risks are skewed to the upside.”

Sandra Horsfield, economist for Investec, said: “We expect the MPC to keep the Bank rate on hold at 3.75% this time, as it did at the March meeting.

“Whereas military strikes were still under way during the MPC’s last policy discussion, the upcoming meeting looks to be held while the US’s indefinite ceasefire is in place.

“However, the repercussions of the conflict are still keenly felt and uncertainty about how the situation could evolve also remains high, which will be key points the MPC will have to consider.”

Elliott Jordan-Doak, senior UK economist at Pantheon Macroeconomics, predicted a unanimous hold vote but suggested recent data could drive future concerns over elevated inflation.

He said: “If surveys for May repeat the same pattern, and crucially the ‘dirty’ Middle East ceasefire continues with oil flows disrupted, we think the MPC will be bumped into a hike in June, or perhaps July.

“We expect rate setters to hike once this year, in June, before cutting twice in 2027 to leave interest rates at 3.5%.”

The Bank of England’s decision will come a day after the US Federal Reserve announces its own monetary policy, with economists also expecting rates to be kept on hold while uncertainty about the economic effects of the conflict persists.