The Bank of England's Monetary Policy Committee voted unanimously to keep the Bank Rate at 3.75% during its March 2026 meeting, pausing a gradual easing cycle that began in 2024. This decision was driven by a sharp spike in global energy prices following the outbreak of war between the US and Iran, which forced policymakers to prioritize inflation risks over growth concerns. All nine MPC members supported the hold, diverging from market expectations of a 7-2 split, with several members indicating they would have favored a 25 basis point cut if not for the conflict. The committee revised near-term inflation projections sharply higher, expecting CPI inflation to reach 3.5% in March, up from 3.0% in January, and potentially remain elevated through Q3 2026 due to higher fuel and utility prices. The MPC emphasized the risk of second-round effects, where higher energy costs could become embedded in wage and price-setting behavior, and noted that future policy could move in either direction depending on how the conflict evolves [1].
The conflict in the Middle East has led to tit-for-tat attacks on key oil and gas infrastructure, notably Iran's attack on Qatar's gas plant, which wiped out 17% of Qatar's LNG export capacity for three to five years, according to QatarEnergy CEO Saad al-Kaabi. Energy prices surged, with Brent crude rising above $100 per barrel and European wholesale gas prices climbing similarly. U.S. natural gas prices increased 1.5% to $3.112 per million BTU, while gasoline prices hit a nearly four-year high. However, oil prices retreated later, with Brent crude futures declining 2% to $106.45 per barrel and U.S. West Texas Intermediate futures dropping 1.56% to $94.64. Saudi officials expect prices could soar past $180 a barrel if supply disruptions persist until late April, according to the Wall Street Journal [2][3].
Market reactions were pronounced. The British pound initially strengthened against several major currencies following the BOE's 'hawkish hold,' sustaining gains against NZD (+0.40%), AUD (+0.68%), CAD (+1.33%), and USD (+1.04%) until the next trading session, though gains against EUR (+0.20%), JPY (+0.05%), and CHF (+0.82%) faded within an hour. Asia-Pacific equity markets traded mixed, with Australia's S&P/ASX 200 down 0.5%, Hong Kong's Hang Seng index dropping 0.36%, and mainland China's CSI 300 index up 0.43%. On Wall Street, the Dow Jones Industrial Average declined 0.44%, the S&P 500 fell 0.27%, and the Nasdaq Composite slumped 0.28% [1][2].
In response to the energy crisis, U.S. Treasury Secretary Scott Bessent stated that Washington may soon lift sanctions on Iranian crude stored aboard tankers, totaling about 140 million barrels, to help cap prices over the next 10 to 14 days. Citi raised its near-term oil price outlook, forecasting Brent and WTI to climb to $120 per barrel in the next one to three months, and up to $150 per barrel in a bull-case scenario if disruptions intensify. However, Citi's base case assumes de-escalation within four to six weeks, which would allow Brent to ease back to $70–$80 by year-end. Israeli Prime Minister Netanyahu said Israel is assisting U.S. efforts to reopen the Strait of Hormuz and claimed Iran no longer has the capability to enrich uranium or produce ballistic missiles, suggesting the war could end sooner than expected [3].
Forward-looking statements from the BOE indicate that the door remains open to both rate cuts and hikes, depending on how the conflict and inflation risks evolve. Citi's forecasts reflect elevated freight costs and strong U.S. Gulf Coast demand for inland barrels, with crude spreads widening sharply. The joint statement from U.S.-aligned countries signals readiness to ensure safe passage through the Strait of Hormuz, aiming to stabilize energy markets [1][2][3].
CONCLUSION
The Bank of England's decision to hold rates underscores the heightened inflation risks stemming from the Middle East conflict, which has disrupted global energy supplies and driven volatile market reactions. Oil and gas prices remain elevated, with forecasts suggesting further upside if disruptions persist, while central banks and governments signal readiness to intervene. The situation remains fluid, with future policy and market direction dependent on the conflict's evolution and its impact on inflation and energy supply.