The Bank of England (BoE) has chosen to hold interest rates at 3.75% as uncertainty continues surrounding the economic impact of the conflict in the Middle East.

The central bank’s latest decision, widely expected by economists, will keep the base rate at its lowest level since February 2023.

At its meeting this week, the nine members on the BoE’s Monetary Policy Committee (MPC) voted by a majority of eight to one to maintain rates at 3.75%. One member voted for an increase to rates by 0.25%, which would have taken the base rate up to 4%.

In its report published today, the MPC said that the conflict in the Middle East means that prospects for global energy prices are “highly uncertain”.

“Monetary policy cannot influence energy prices but will be set to ensure that the economic adjustment to them occurs in a way that achieves the 2% inflation target sustainably,” the MPC’s report said. “The policy stance required to achieve this will depend on the scale and duration of the shock, and how it propagates through the economy.”

The Office for National Statistics (ONS) announced earlier this month that the UK’s rate of inflation climbed to 3.3% for the year to March, and the BoE today warned inflation is “likely to be higher later this year”, as the effects of higher energy prices pass through.

Chief investment strategist at Hargreaves Lansdown, Emma Wall, said that while the latest news is not going to directly lead to a recession, it will have an impact on the UK economy.

She added: "Gilt yields have fallen on the news. Markets were concerned that the vote would be more divided, and that the forward guidance starker.

"Our house view is that the rate is held whilst the conflict is active, and the Strait of Hormuz restricted. However, we recognise that there’s significant continued uncertainty and that volatility in the gilt market is expected to continue. We think, unlike in 2022, the weaker jobs market constrains the likelihood of wage inflation. But the BoE is unlikely to cut base rate until later in the cycle. We additionally think a domestic recession is unlikely, though note that the outlook for UK growth is anaemic, and recently downgraded by the IMF, which will impact consumer confidence."

Head of financial analysis at AJ Bell, Danni Hewson, stated that these decisions have to be taken cautiously, especially in the turbulent markets of recent weeks.

She concluded: "There is a great deal of uncertainty about what is going to happen in the coming weeks, and the IMF has warned central bankers not to rush to hike rates at a time when global growth is incredibly fragile.

"Until the Iran war, the inflationary path had been downhill. This period could ultimately turn out to be a pause in the rate cutting journey, rather than an about turn that would impact both consumer and business sentiment.

"There are consequences of getting this wrong, but the unpredictability of the US administration means decisions are being taken in the dark. It’s incredibly difficult to see the clouds on the horizon, let alone figure out how bad the coming storm may be."

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