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The Bank of England (BoE) has voted to hold interest rates steady at 3.75%, as the ongoing conflict in the Middle East continues to disrupt the economy.
The BoE voted by a majority of 8-1 to maintain the rate at 3.75%, with one member voting to increase it by 0.25 percentage points, to 4%.
The bank acknowledged that the ongoing war in the Middle East “means that prospects for global energy prices are highly uncertain”, and is disrupting the transportation and supply of energy, raising its price and pushing up households’ motor fuel costs.
It comes as inflation has risen to 3.3%, higher than the BoE predicted in February, before the start of the war. In its latest update the bank said it is “likely that it will be higher later this year”.
UK inflation rose to 3.3% in the year to March, up from a 3% rise in February, as fuel prices hit a three-year high amid the ongoing US-Israel war with Iran. According to the Office for National Statistics (ONS), the largest upward contribution from transport was partially offset by a large downward contribution from clothing and footwear over the period.
As the Middle East conflict continued, motor fuel prices rose by 4.9% in the year to March, a significant shift from the 4.6% fall recorded in February.
Average petrol prices reached 140.2 pence per litre, the highest level since August 2024, while diesel prices rose by 17.6 pence per litre during the month to reach an average of 158.7 pence.
The BoE today (30 April) said it expects energy price rises to have “knock-on effects”, adding that “as businesses’ bills go up, it is likely they will increase their own prices to cover the cost”.
It warned that the impact on the economy and inflation will “depend on how much energy prices go up and how long they stay raised; it will also depend on how much pressure businesses feel to increase wages and prices”.
The BoE said: “Monetary policy cannot affect global energy prices; our job is to make sure that higher inflation does not persist and have long-lasting effects on the economy. We are monitoring the situation very closely; whatever happens, we’ll make sure that inflation gets back to the target in the medium term.”
