Bank of England keeps rate at 3.75% amid Iran war‑driven oil price

The Bank of England left its Bank Rate unchanged at 3.75% on Thursday, the first unanimous hold in over four years, as oil and gas price spikes from the Iran war raise fresh inflation concerns for the UK economy【1】.

Decision context and inflation outlook

All nine members of the Monetary Policy Committee voted to keep borrowing costs on hold, a unanimity not seen since 2020【1】. The decision came after the United States and Israel began bombing Iran less than three weeks earlier, an event that pushed global energy prices sharply higher. Governor Andrew Bailey said the Bank “has held interest rates at 3.75% as we assess how events unfold,” adding that the priority remains getting inflation back to the 2% target【2】.

Before the war erupted on Feb. 28, analysts had widely expected a rate cut because UK inflation was projected to drift toward the 2% goal in the coming months. In the previous meeting, four of the nine policymakers had voted for a cut, reflecting that optimism【1】. The conflict‑driven surge in oil and gas prices—especially after Iran intensified attacks on Gulf facilities, including Qatar’s Ras Laffan LNG plant—has upended those forecasts, prompting the Bank to reassess its inflation trajectory for 2026【1】.

Market response and broader central‑bank landscape

The hold, coupled with the “real risk” of future rate hikes noted by Deutsche Bank’s UK chief economist, pushed UK gilt yields up about five basis points and saw the pound dip modestly against the dollar【1】. The move mirrors actions by other major central banks: the U.S. Federal Reserve also kept its policy rate steady on Wednesday, while the European Central Bank held rates and warned that the Iran war makes the outlook “significantly more uncertain”【1】.

Higher rates are expected to temper demand by making borrowing more expensive for businesses and households, which could help contain price pressures despite the energy‑price shock. However, the Bank’s own language suggests that inflation is unlikely to reach the 2% target as quickly as previously projected, reducing the likelihood of near‑term cuts【2】.

What to watch

• UK CPI data: The next consumer price index release (scheduled for early July) will indicate whether inflation is indeed staying above target.
• Monetary Policy Committee minutes: Insights from the Thursday meeting, due later this month, may reveal how the Bank weighs the war’s duration against policy options.
• Strait of Hormuz activity: Any escalation that further disrupts the flow of the roughly 20% of world crude passing through the strait could reignite energy‑price pressures and influence future rate decisions.

The BoE’s decision underscores how geopolitical shocks can quickly reshape monetary policy expectations, leaving markets to price in higher rates while the inflation outlook remains clouded by the unfolding Iran conflict.