BOE ‘stands ready to act’ as it unanimously votes to hold rates

Published Thu, Mar 19, 2026 · 08:32 PM

[LONDON] The Bank of England voted unanimously to keep interest rates on hold and said it “stands ready to act” to tackle any inflation surge triggered by war in the Middle East.

All nine members of the Monetary Policy Committee voted to leave rates unchanged at 3.75 per cent on Thursday (Mar 19) – their first decision without any dissent in four and a half years.

Minutes from the meeting evidenced a major shift in tone, while the conflict disrupts production in the world’s most important oil-producing region and stops tankers passing through the crucial Strait of Hormuz. 

The rate-setters opened the door to possible rate hikes, with Governor Andrew Bailey warning that policy must “respond to the risk of a more persistent effect on UK CPI inflation.” In a separate statement he added: “Whatever happens, our job is to make sure inflation gets back to its 2 per cent target.”

The nine-member panel dropped language from February’s decision that told investors the benchmark rate was “likely to be reduced further.” 

The scale of the challenge was underscored by Swati Dhingra, one of the BOE’s most dovish officials, saying that a hike may be needed in the event of a long-lasting energy supply shock. Several rate-setters indicated they would have backed a cut to borrowing costs had the conflict not broken out.

Traders had reversed their bets on the BOE easing policy further since the first strikes on Iran in late February, with interest-rate hikes now considered more likely than cuts. European natural gas prices surged overnight after Iranian missiles damaged the world’s largest liquefied natural gas export plant, sending benchmark futures jumping as much as 35 per cent higher on Thursday morning.

The US Federal Reserve also held rates on Wednesday night, with outgoing chair Jerome Powell saying it was too soon to gauge the effects of the war on America’s economy.

Bailey pointed to signs that the instability is already feeding through to UK consumers through increased petrol costs, and flagged the risk that it pushes up household energy bills later in the year. The BOE revised its near-term inflation forecasts sharply higher, predicting price growth will accelerate to 3.5 per cent in March – around half a percentage point faster than they had expected before the war.

The committee stressed that monetary policy can’t influence the global energy price surge, and the governor underlined how the best resolution depends on restoring safe passage for ships through Hormuz. 

However, the MPC is “alert” to the possibility of second-round effects that keep inflation high, as the crisis evokes painful memories of the 2022 energy price shock that followed Russia’s invasion of Ukraine.

While inflation hit double digits then and prompted criticism of a slow response from the BOE, officials are facing a very different economic backdrop this time. The labour market has weakened in recent quarters, despite holding up better than expected in data published hours before the BOE’s announcement. BLOOMBERG