A road closure sign leans against a wall outside Royal Exchange in the heart of the City of London, on 13th June 2022, in London, England.
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Before the war in Iran erupted, the Bank of England was widely predicted to be on course to cut interest rates at its meeting next week.
But the U.S. and Israel’s attack on major oil producer Iran, and the turmoil engulfing the wider Middle East as the war escalates, have put the brakes on a March rate cut, economists have predicted.
“BoE cuts are possible in the first half of 2026, but March is off the table and April requires a clear calming of geopolitical tensions,” Allan Monks, chief U.K. economist at JPMorgan, said in emailed analysis.
“For now we delay the next cut to April, but the risks are already shifting towards a lengthier pause and larger growth impact,” he added.
Economists were confident that the central bank’s policymaking committee, the MPC, would lean toward a rate cut to stimulate the British economy amid lackluster growth, a weakening jobs market, and a downward trend in the inflation rate.
A worker looks out onto the weather deck of the Armada gas condensate platform, operated by BG Group Plc, in the North Sea, off the coast of Aberdeen, U.K.
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The war has damaged oil and gas infrastructure and led to the effective closure of the Strait of Hormuz maritime corridor, jeopardizing global supplies and driving up energy prices.
The meeting on March 19 is likely to be overshadowed by heightened uncertainty around the trajectory of energy prices and their impact on the inflation and growth outlook, Anna Titareva, European economist at UBS Investment Bank, said on Monday, predicting policymakers would prefer “to wait for more clarity and stay on hold” in March.
“With the geopolitical situation remaining highly uncertain, we think that by the time of the March meeting, the MPC will not be able to determine the nature of the shock with sufficient certainty,” she said.
While the BOE could look through “short-lived shocks,” larger and more persistent shocks could require a monetary policy response, she said.
UBS forecast that the next rate cuts were now due in April and July, rather than March and June. “That said, we see significant risks to our baseline depending on the developments in the Middle East and implications for energy prices,” Titareva said.
Energy price shock
The U.K. is highly sensitive to fluctuations in energy prices, given it imports around 40% of its oil supplies and up to 60% of its natural gas, 2025 data shows, despite having some dwindling oil and gas production of its own in the North Sea.
This makes energy price rises for consumers likely.
The U.K.’s inflation had been high but had been falling amid expectations that energy prices would fall in spring. The last inflation reading in January showed the rate of price rises had cooled to 3% in January, down from 3.4% the previous month.
That had spurred hopes that the BOE’s forecast for inflation to fall toward the bank’s 2% target was on track, and that a rate cut, from the current level of 3.75%, was warranted and just around the corner.
What comes next largely depends on how long the war on Iran lasts and the degree to which energy supplies are disrupted, economists say.
“The current spike in energy prices leaves the BOE with a real dilemma,” JPMorgan’s Monks noted.
“Still restrictive rates and an ongoing deterioration in the jobs market creates pressure for it to ease further.
“But the Bank now faces another wave of inflation barring a significant and rapid de-escalation in the Middle East,” he said, noting that the BOE had been “scarred by the stickiness of U.K. inflation versus other economies, and one vulnerability is the UK’s high dependence on natural gas.”
The British government has said it is monitoring oil and gas prices and will do all it can to protect the U.K.’s energy security. But it also noted in a factsheet on Friday that “the price of oil and gas is determined by international markets, not the U.K.. We are price-takers, not price-makers.”
It said the energy price cap — the maximum rate households can be charged for their energy supplies — would protect households until the start of July, when the cap is reviewed.
After that, household bills could rise, the government said, adding: “The biggest driver of energy prices for homes and businesses is the cost of wholesale gas set by international markets. If this remains high, it could have an impact on bills in the future.”