"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."
"Bank of England decision-makers have understandably turned super-wary as war rages in the Middle East, with an energy crisis mounting and inflationary pressures building sharply. Shockflation fears are rising as oil and gas prices escalate to scorching levels, which risk spilling over into broad price rises across the economy."
"They are now forecasting that the headline rate of inflation will rise to 3½% in March, almost half a percentage point higher than expected in the February Report. So, they feel they have little choice but to sit on their hands, watching and waiting to see how the conflict evolves."
The Bank of England maintained its base interest rate at 3.75%, pausing anticipated rate cuts due to geopolitical tensions between the US and Iran. Markets had previously expected at least two rate cuts in 2026. Rising gas prices from Middle East conflict have increased inflation concerns, reversing earlier disinflation trends. The central bank raised rates to 5.25% previously to combat inflation but now faces renewed inflationary pressures from energy costs. The decision affects borrowing costs for businesses and consumers, including mortgages and savings returns. The Bank forecasts headline inflation rising to 3.5% in March, prompting a cautious holding pattern.
Read at London Business News | Londonlovesbusiness.com
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