The Bank of England (BoE) has chosen to hold interest rates at 3.75% in the wake of the economic impact of the war in the Middle East.

Before the US-Israel conflict with Iran, financial markets had been anticipating a cut in the central bank’s base rate this month, but amid spiralling oil prices the BoE has confirmed it has now held off such a move.

When the BoE’s Monetary Policy Committee (MPC) met at its February meeting to decide the base rate, the nine members voted in a five to four split in favour of holding rates, with four members preferring a cut.

At the MPC’s meeting this week, however, all nine members voted unanimously to maintain rates at 3.75%, keeping them at their lowest level since February 2023.

In its report published today, the MPC said the conflict in the Middle East has caused a “significant increase in global energy and other commodity prices”, which will affect households’ fuel and utility prices, and have indirect effects via businesses’ costs.

The Committee warned that inflation will be “higher in the near term” as a result of the new shock to the economy.

“The MPC is alert to the increased risk of domestic inflationary pressures through second-round effects in wage and price-setting, the risk of which will be greater the longer higher energy prices persist,” the MPC report said.

“The Committee will continue to monitor closely the situation in the Middle East and its impact on global energy supply and energy prices.”

Co-chief investment officer and partner at wealth management firm Saltus, Charlie Ambler, said that the risk of renewed pressure later in 2026 is now “front of mind for investors”.

“With both the FTSE 100 and S&P 500 falling sharply over recent days, bond yields rising and ongoing gold price volatility, geopolitics continues to shape asset allocation decisions,” Ambler commented.

“However, as long-term returns are driven by maintaining diversified exposure to quality assets, the focus should remain firmly on quality and resilience, underpinned by a disciplined approach portfolio construction.”

Chief investment strategist at Wealth Club, Susannah Streeter, added: “BoE decision-makers have understandably turned super-wary as war rages in the Middle East, with an energy crisis mounting and inflationary pressures building sharply.

“Shockflation fears are rising as oil and gas prices escalate to scorching levels, which risk spilling over into broad price rises across the economy.

“However, interest rate policy is a blunt tool. This is an imported inflation crisis, and keeping rates higher to try to dampen domestic demand will hurt the whole economy. Only a resolution to the conflict will tackle the root cause.”

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