19th Mar 2026 12:20
(Alliance News) - The Bank of England on Thursday left its key interest unmoved, in a rare unanimous decision, and it warned surging energy prices will provide a "new shock to the economy".
The decision, which was expected by the market, kept bank rate at 3.75%.
All the nine strong Monetary Policy Committee, including Governor Andrew Bailey, voted to hold rates. A divided MPC has characterised recent meetings. According to consensus cited by FXStreet, two had been expected to cut this time, so the 9-0 decision was a surprise.
"Conflict in the Middle East has caused a significant increase in global energy and other commodity prices, which will affect households' fuel and utility prices and have indirect effects via businesses' costs. Prior to this, there had been continued disinflation in domestic prices and wages. CPI inflation will be higher in the near term as a result of the new shock to the economy," the BoE said.
"Monetary policy cannot influence global energy prices but aims to ensure that the economic adjustment to them occurs in a way that achieves the 2% target sustainably. The MPC is alert to the increased risk of domestic inflationary pressures through second-round effects in wage and price-setting, the risk of which will be greater the longer higher energy prices persist. The MPC is also assessing the implications for inflation of the weakening in economic activity that is likely to result from higher energy costs."
In February, the BoE said that "on the basis of the current evidence, bank rate is likely to be reduced further". That line was not repeated in March.
Governor Bailey said that while monetary policy "cannot reverse" the shock seen in energy prices, it can "respond to the risk of a more persistent effect on UK CPI inflation".
"A prolonged disruption to the supply of oil, natural gas and other commodities such as fertiliser and neon gas increases the upside risk to inflation. The recent experience of high inflation may also make households and businesses more sensitive to a new inflationary shock. At the same time, the starting point for this shock is a real economy with limited pricing power. Holding bank rate at this meeting is appropriate," he said.
Among other MPC members, Chief Economist Huw Pill said: "The potential for second-round effects following recent events in the Middle East remains substantial, justifying caution in monetary policy setting."
Dave Ramsden, deputy governor for Markets & Banking, would have backed a 25 basis point cut were it not for the Middle East conflict.
Monetary Policy Deputy Governor Clare Lombardelli said: "Policy coming into this shock may have been broadly neutral or mildly restrictive and there has since been some tightening of financial conditions. We will learn more in coming weeks about the shock itself and its effects."
The pound traded at USD1.3295 after the decision, up slightly from USD1.3290 beforehand.
By Eric Cunha, Alliance News news editor
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