LONDON (AP) — The Bank of England kept its main interest rate on hold at 3.75% Thursday as policymakers assess the economic impact of the Iran war and Tehran’s effective closure of the Strait of Hormuz, through which a fifth of the world’s crude passes. The decision was widely expected and echoes the decision of the U.S. Federal Reserve
on Wednesday to keep rates unchanged. It was the same theme in Japan on Tuesday.Minutes from the meeting showed
that eight of the nine rate-setters voted to keep rates on hold while one member opted for a quarter-point hike.
“We think this is a reasonable place given the situation of the economy and the unpredictability of events in the Middle East,” said Bank Gov. Andrew Bailey. "We’ll continue to monitor the situation and its impact on the U.K. economy very closely. Whatever happens, our job is to make sure that inflation gets back to the 2% target after the initial impact of the war on energy prices has passed.” Before the start of the Iran war on Feb. 28, there had been an expectation in financial markets that the Bank of England would cut rates given that inflation was predicted to fall back toward its 2% target during the spring. The war has since upended the bank’s predictions and wider global economic forecasts as the price of oil and other costs have spiked sharply higher. Energy prices have raced up again over the past few days as traders price in a growing expectation that the Strait of Hormuz will remain closed for a long time to come. Brent crude, the international standard, briefly jumped to over $126 a barrel at one point Thursday, its highest level since the aftermath of Russia’s full-blown invasion of Ukraine four years ago.
Bank of England policymakers will be keeping an eye on whether the evident inflation spike starts to spread through the economy, by way of higher wages, for example. They will also be alert to any upcoming action from Britain's Labour government to limit the inflation impact on households and businesses. Treasury chief Rachel Reeves, whose hopes over the cost-of-living have been blown off course by the crisis in the Middle East, has said she is ready to provide support when and if needed.
According to new data released Thursday, soaring oil prices from the Iran war pushed inflation higher in Europe in April as growth continued to underperform in a worrying combination both for consumers and policymakers at the European Central Bank.
