BOE, ECB hold rates steady on energy prices, inflation fears
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The news: The Bank of England (BoE) and the European Central Bank (ECB) both held rates steady as uncertainty and spiralling energy prices driven by the Middle East conflict prompted policymakers to exercise caution.
The numbers: The BOE’s Monetary Policy Committee voted unanimously to hold interest rates at 3.75% at its first meeting since the US and Israel launched attacks on Iran. Two-year gilt yields surged 0.34 percentage points to 4.45% on the news, putting UK government bonds on course for their worst performing day since the war broke out.
The ECB held its benchmark interest rate at 2% for its sixth consecutive meeting, with the bloc’s policymakers now expecting inflation to surge to 2.6% in 2026. The figure is a marked increase compared to its December estimate of 1.9%.
The context: Both central banks focused on impact of the war in the Middle East is having on energy prices and the resulting uncertainty weighing on the short and medium term outlook.
The ECB said in a statement on Thursday: “The war in the Middle East has made the outlook significantly more uncertain, creating upside risks for inflation and downside risks for economic growth.”
The central bank said the war will have a material impact on near-term inflation through higher energy prices, while medium-term implications will depend both on the intensity and duration of the conflict and on how energy prices affect consumer prices and the economy.
The BoE said the increase in global energy and other commodity prices will affect households’ fuel and utility prices and have indirect effects via businesses’ costs.
The decisions come after the US Federal Reserve held rates at 3.5%-3.75% on Wednesday, (Thursday AEDT) in a 11-1 vote, with Donald Trump adviser and appointee Stephen Miran casting his fifth straight dissent in favour of a quarter-point cut.
