{"id":418613,"date":"2026-04-30T16:20:08","date_gmt":"2026-04-30T16:20:08","guid":{"rendered":"https:\/\/www.newsbeep.com\/il\/418613\/"},"modified":"2026-04-30T16:20:08","modified_gmt":"2026-04-30T16:20:08","slug":"bank-of-england-warns-higher-inflation-unavoidable-after-holding-interest-rates-bank-of-england","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/il\/418613\/","title":{"rendered":"Bank of England warns \u2018higher inflation unavoidable\u2019 after holding interest rates | Bank of England"},"content":{"rendered":"

The Bank of England<\/a> has left interest rates unchanged at 3.75% but said the UK may need to brace for increases later this year, as \u201chigher inflation is unavoidable\u201d as a result of the war in the Middle East.<\/p>\n

The Bank\u2019s rate-setting monetary policy committee (MPC) voted to leave borrowing costs on hold, but said that if energy costs stayed persistently high it might have to take a more \u201cforceful\u201d response to keep inflation under control.<\/p>\n

The nine-member MPC was split 8-1 in its decision to keep borrowing costs on hold for the third consecutive meeting. Andrew Bailey, the governor of the Bank of England, said: \u201cWhere we go from here will depend on the size and duration of the shock to energy prices\u201d as the conflict in the Middle East evolves.<\/p>\n

The Bank outlined a worst-case scenario in which the price of oil rose above $130 a barrel and remained elevated for a prolonged period. It predicted that if this \u2013 which it called scenario C \u2013 happened, inflation would probably peak at 6% by the start of 2027, unemployment would rise to 5.6% and interest rates would have to rise to 5.25% to combat this.<\/p>\n

Bailey said: \u201cThe longer this problem goes on and the longer the disruption to energy supplies goes on, the more difficult the scenario we\u2019re in.\u201d<\/p>\n

However, the governor added that the decision to hold rates at 3.75% for now was reasonable \u201cgiven the situation of the economy and the unpredictability of events in the Middle East\u201d.<\/p>\n

A chart showing changes to interest rates since 2005<\/a><\/p>\n

Bailey said there was also a chance that interest rates remained unchanged this year if the Iran war was resolved quickly.<\/p>\n

The MPC\u2019s role is to try to help keep UK inflation at a target of 2%. It has cut interest rates six times since mid-2024 and had been expected to make further reductions this year before the US-Israel war on Iran began.<\/p>\n

The Bank said the conflict in the Middle East meant the outlook for inflation was \u201ca very different picture from three months ago\u201d when it was expected to fall to 2% by the middle of the year. Instead, the latest figures from the Office for National Statistics showed the rate of UK inflation, as measured by the consumer prices index, rose to 3.3% in March<\/a>, up from 3% in February.<\/p>\n

The sharp rise in energy prices is already being felt in the UK in the form of higher fuel costs. Officials at the Bank said typical energy bills were likely to rise 16% to \u00a31,900 by the summer. Food inflation is also expected to rise 7% by the end of the year because of higher prices for fertiliser, energy and transport.<\/p>\n

A bar graph<\/a><\/p>\n

While policymakers believe global energy prices will have a direct effect on pushing up fuel costs and utility bills, they expect the impact of \u201csecond-round effects\u201d to be more restrained. The Bank said demand for labour in the UK was subdued and that unemployment had been rising since 2024, making it harder for workers to bargain for higher wages. Similarly, companies\u2019 ability to increase prices was likely to be constrained by weak demand amid shaky consumer confidence, it added.<\/p>\n

The only dissenting voice in this decision was Huw Pill, the Bank\u2019s chief economist, who voted to raise rates to 4%. Pill said he saw the risk of second-round effects of higher prices and wages being \u201cskewed to the upside\u201d and said they had the potential to raise UK inflation beyond the near term in a \u201cpersistent manner\u201d.<\/p>\n

The Bank laid out three scenarios for what might happen to the UK economy depending on different impacts of the Iran war. In all three cases, inflation is expected to rise, and unemployment will go up to at least 5.5%.<\/p>\n

Policymakers cautioned away from their worst case scenario of oil staying at $130 a barrel for the rest of 2026 and said they were more closely following a situation in which oil peaks at $108 a barrel this year.<\/p>\n

Daily fluctuations to the price of Brent crude since 25 February<\/a><\/p>\n

Earlier on Thursday, Brent crude hit a four-year high of $126 a barrel, but has now dropped back to $115.50 a barrel.<\/p>\n

In the Bank\u2019s scenario A, in which oil prices come down quickly from $108, inflation will be 3.3% in 2026, 2.6% in 2027 and 1.5% in 2028. In scenario B, where oil stays at $108 for longer, inflation is also 3.3% in 2026, then 3% in 2027 and 2% in 2028. Under both scenarios, unemployment rises to 5.5% in 2027 and then falls to 5.4% in 2028.<\/p>\n

Activist wearing Andrew Bailey mask protests against interest rates outside Bank of England. Photograph: Vuk Valcic\/ZUMA Press Wire\/Shutterstock<\/p>\n

Bailey told a press conference on Thursday the decision was \u201ca deliberately, active hold\u201d.<\/p>\n

\u201cIt is not the case that we\u2019re sort of giving some sort of slightly clandestine message that interest rates are going to go up,\u201d he said, although the Bank\u2019s modelling suggests interest rates might need to rise under scenario B as well as C.<\/p>\n

The City money markets lowered their expectations for rate rises this year slightly after the Bank\u2019s decision was announced. They are now pricing in about 62 basis points (0.62 of a percentage point) of increases by the end of 2026, down from 70.<\/p>\n

The ECB president, Christine Lagarde, said a possible increase in interest rates for the eurozone had been discussed \u2018at length\u2019 by policymakers Photograph: Heiko Becker\/Reuters<\/p>\n

Separately, the European Central Bank voted to keep its interest rates on hold, at 2%, but said the Iran war meant risks to inflation rising and growth shrinking had \u201cintensified\u201d across the eurozone.<\/p>\n

Christine Lagarde, the ECB president, said the final decision to hold rates was unanimous but told a press conference that a possible increase had been discussed \u201cat length\u201d by policymakers. She said the next meeting in June would be the \u201cright time\u201d for a new assessment when policymakers had more information on the impact of the war on the economy.<\/p>\n

Echoing Bailey\u2019s comments, Lagarde said: \u201cThe longer the war [in the Middle East] continues and the longer energy prices remain high, the stronger is the likely impact on broader inflation and the economy.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"The Bank of England has left interest rates unchanged at 3.75% but said the UK may need to…\n","protected":false},"author":2,"featured_media":418614,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[114,184,85,46],"class_list":["post-418613","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-business","tag-economy","tag-il","tag-israel"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/418613","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/comments?post=418613"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/418613\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media\/418614"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media?parent=418613"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/categories?post=418613"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/tags?post=418613"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}