LONDON — The Bank of England is set to keep interest rates on hold Thursday as fears grow that the conflict between Israel and Iran will escalate to involve the United States and send oil prices soaring and push U.K. inflation further above target.
The bank’s nine-member Monetary Policy Committee is widely expected to hold its main interest rate at the two-year low of 4.25% as they await to see how the conflict in the Middle East pans out over coming days.
With U.K. inflation at 3.4% above the bank’s target rate of 2%, policymakers are likely to be mindful of the impact on oil prices, which have risen sharply in recent days to over $75 a barrel.
The prevailing view at the bank was that inflation would remain elevated over the coming months but start to head back towards next year. The uptick in oil prices has the potential to scupper that expectation.
“The risk to energy prices has clearly intensified and moved up the agenda given developments in the Middle East,” said Sandra Horsfield, an economist for Investec.
Uncertainty over the level of tariffs U.S. President Donald Trump will impose around the world is also clouding the outlook for prices around the world. Though the U.K. looks like it will be spared a raft of tariffs, the backdrop for the global economy remains highly uncertain.
That tariff concern is at the forefront of concerns at the U.S. Federal Reserve, which on Wednesday kept its key rate unchanged, to the chagrin of Trump, who has been urging the central bank to join others, such as the Bank of England and European Central Bank, and cut borrowing costs.
Since its first quarter-point rate cut last August from the 16-year high of 5.25%, the Bank of England has played it steady, reducing interest rates every three months. That would mean the next reduction is in August.
