The Bank of England has widely expected to keep interest rates at 3.75% on Thursday despite economists warning the Iran war and soaring energy prices threatening to push up UK inflation
UK borrowing costs are likely to remain steady as worries over the impact of the Iran war on inflation freeze any plans for a reduction, according to economists.
The Bank of England is widely predicted to maintain interest rates at 3.75% this Thursday. Prior to the intensification of the conflict in Iran, some economists had anticipated a rate cut from policymakers.
This shift reflects the evolving outlook for energy costs due to skyrocketing oil and gas prices in recent weeks, and the potential impact this could have on UK inflation. The Bank predicts that Consumer Prices Index (CPI) inflation will drop close to 2% by April, but experts suggest price increases could speed up towards the latter half of the year if higher wholesale gas and oil prices result in steeper household electricity and fuel costs.
READ MORE: Donald Trump threatens to ‘massively blow up’ world’s largest gas fieldREAD MORE: Energy firms warned against ripping off businesses as Middle East crisis pushes up prices
Ensure our latest headlines always appear at the top of your Google Search by making us a Preferred Source. Click here to activate or add us as your Preferred Source in your Google search settings.
Earlier this week, the Office for Budget Responsibility (OBR), the Government’s official forecaster, cautioned that one percentage point could be added to UK inflation this year if the current surge in energy prices continues.
Edward Allenby, senior UK economist for Oxford Economics, said: “The UK inflation outlook was starting to brighten, but the conflict in the Middle East has thrown a spanner in the works. Against this backdrop, it’s almost certain that the MPC will keep bank rate unchanged at 3.75% at the March meeting.
“If the shock proves short-lived and recent price rises fully reverse, we still think there’s a reasonable chance that the MPC will resume its cutting cycle either in April or June. However, if the surge in energy prices persists or goes higher, the MPC will be set for an extended pause.”
Thomas Pugh, chief economist for RSM UK, concurred that the recent events have likely ruled out a rate cut this month, and possibly in April as well. He stated: “Reflecting the scale of volatility we’re all coming to terms with, it was only two weeks ago that a March rate cut looked like a dead cert.
“A cut clearly makes no sense now. Given uncertainty about the outlook for energy prices, inflation and the economy, the most sensible thing for the Bank of England to do now is wait for more clarity. This rules out a rate cut next week and probably one in April too, unless there’s a rapid resolution to the crisis.”
A slew of Britain’s largest lenders have been ramping up mortgage rates in response to the conflict, spurred by a sharp increase in swap rates, which are used to price mortgages. Financial information website Moneyfacts reported that major lenders no longer offer sub-4% fixed-rate deals – which were available to borrowers just last week.
Across the mortgage market generally, there were 689 fewer products on the market on Tuesday, compared with March 9.
The Bank of England’s verdict will arrive a day after the US Federal Reserve reveals its own interest rates, which are also broadly anticipated to remain unchanged due to the increased uncertainty.
Follow our live blog for the latest Iran war updates by clicking here.
