The Bank of England's Monetary Policy Committee voted unanimously to keep the Bank Rate at 3.75% during its March 2026 meeting, citing heightened inflation risks stemming from a sharp spike in global energy prices triggered by conflict in the Middle East, specifically the US-Iran war [1]. This decision marked a pause in the gradual easing cycle that began in 2024, with all nine MPC members opting for a 'hawkish hold' despite previous expectations of a 7-2 split and potential rate cuts if not for the war [1]. The committee revised near-term inflation projections sharply higher, expecting CPI inflation to reach close to 3.5% in March, up from 3.0% in January, and possibly up to 3.5% again in Q3 2026, primarily due to higher fuel and utility prices [1]. Policymakers highlighted the risk of second-round effects, where elevated energy costs could become embedded in wage and price-setting behavior, and acknowledged growth risks as secondary, noting Q4 2025 GDP growth of just 0.1% and unemployment at 5.2% [1]. The committee left the door open to both rate cuts and hikes 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 infrastructures, including 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 [2]. Energy prices soared, with Brent crude rising above $100 per barrel and European wholesale gas prices climbing similarly [1][2]. U.S. natural gas prices increased by 1.5% to $3.112 per million British thermal units, and gasoline prices hit a nearly four-year high [2]. However, oil prices retreated after U.S. Treasury Secretary Scott Bessent announced that Washington may soon lift sanctions on Iranian crude stored aboard tankers, potentially releasing about 140 million barrels to global markets to cap prices over the next 10 to 14 days [3]. Brent crude lost 2% to $106 per barrel, and U.S. oil prices slid 1.56% to $94.64 per barrel [2][3].
Saudi officials expect crude prices could climb above $180 a barrel if supply disruptions persist until late April, according to the Wall Street Journal [2][3]. Citi raised its near-term price outlook, forecasting Brent and WTI to climb to $120 per barrel over the next one to three months, and up to $150 per barrel in a bull-case scenario if disruptions intensify. 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 [3]. Key crude spreads have widened sharply, reflecting elevated freight costs and strong U.S. Gulf Coast demand [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 [1]. Asia-Pacific 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% [2]. U.S. equity markets also declined, with the Dow Jones Industrial Average down 0.44%, S&P 500 down 0.27%, and Nasdaq Composite down 0.28% [2]. Gold and silver prices dropped sharply before paring losses, with gold shedding around 5% and silver 10% [2].
Forward-looking statements from policymakers and analysts indicate uncertainty. The BOE noted that future policy could move in either direction depending on the conflict's evolution [1]. Citi expects oil prices to rise further if disruptions intensify but anticipates a return to lower prices if de-escalation occurs within weeks [3]. U.S. and allied countries signaled readiness to ensure safe passage through the Strait of Hormuz, while Israeli Prime Minister Netanyahu stated Israel would refrain from further attacks on Iranian energy facilities and suggested the war could end sooner than expected [2][3].
CONCLUSION
The Bank of England's decision to hold rates reflects heightened inflation risks from the Middle East conflict, which has caused significant disruptions to global energy supply and volatility in commodity and equity markets. Analysts and policymakers remain cautious, with future policy and price trajectories dependent on the conflict's duration and resolution. The market impact is high, with ongoing uncertainty likely to drive further volatility in the near term.