BoE Statement: Bank Rate held at 3.75%, as expected, in a 9-0 vote (vs prev. 5-4 to hold rates)

VOTE:

• BoE maintains Bank Rate at 3.75%
• Vote unanimous

GUIDANCE:

• BoE says it stands ready to act as necessary to ensure that CPI inflation remains on track to meet the 2% target in the medium term
• BoE will continue to monitor closely the situation in the Middle East and its impact on global energy supply and energy prices
• A larger or more protracted shock would require a more restrictive policy stance
• Policy would need to be less restrictive if the shock was very short-lived, or if there were to be a larger opening up of slack in the economy that was expected to reduce medium-term inflationary pressures

INFLATION:

• Conflict in the Middle East has caused a significant increase in global energy and other commodity prices
• CPI inflation will be higher in the near term as a result of the new shock to the economy
• Prior to the shock, there had been continued disinflation in domestic prices and wages
• Twelve-month CPI inflation fell to 3.0% in January from 3.4% in December
• CPI inflation is now expected to be a little over 3% in February
• CPI inflation is expected to be close to 3.5% in March
• CPI inflation is expected to be around 3% in Q2 rather than 2.1% in the February Report
• Based on oil and gas futures curves as of 16 March, Bank staff projections suggest the direct contribution of energy prices to CPI inflation in 2026 Q3 would be around 0.75 ppts
• Indirect effects from firms passing on higher energy costs to consumer prices could further push up CPI inflation by around 0.25 ppts in 2026 Q3
• CPI inflation could increase to up to 3.5% in Q3
• CPI inflation is now likely to be between 3% and 3.5% over the next couple of quarters
• The MPC is alert to the increased risk of domestic inflationary pressures through second-round effects in wage and price-setting
• Risk of second-round effects will be greater the longer higher energy prices persist
• Latest Bank/Ipsos and Citi measures of year-ahead expected inflation had both fallen ahead of the Middle East conflict
• Firms’ year-ahead own-price inflation expectations in the Decision Maker Panel edged down slightly in the three months to February
• Near-term financial market-based measures of inflation compensation had increased markedly since the conflict started

ECONOMY:

• Shipping through the Strait of Hormuz had almost ground to a halt following some Iranian attacks on vessels attempting transit
• Around one-fifth of global oil and liquefied natural gas supply flowed through the Strait of Hormuz
• Oil prices in the run-up to the 18 March meeting were over USD 100/bbl
• Dutch Title Transfer Facility spot gas prices in the run-up to the meeting were over EUR 50/MWh
• UK natural gas futures feeding into the next Ofgem price cap for July to September had increased on average by 35% to 40%
• The coordinated release of strategic oil reserves by International Energy Agency members would only partially offset the negative impact on global oil supply
• Overall financial conditions had tightened
• UK GDP expanded by 0.1% in 2025 Q4
• Activity remained subdued in 2026 Q1 with monthly GDP flat in January
• Bank staff continued to estimate underlying quarterly GDP growth for Q1 would be around 0.

FORECASTS:

• Large majority of responses to the latest Market Participants Survey expected no change in Bank Rate at this meeting
• Latest market-implied path for Bank Rate sloped slightly upwards over 2026
• Annual growth in private sector regular Average Weekly Earnings was 3.3% in the three months to January
• Basic private sector pay settlements are expected to average 3.6% over 2026
• Market intelligence suggested market participants’ central expectation was for a relatively short-lived conflict

COMMENTARY:

• Bailey says a prolonged disruption to the supply of oil, natural gas and other commodities increases the upside risk to inflation. Bailey says recent experience of high inflation may make households and businesses more sensitive to a new inflationary shock
• Breeden says absent the shock she would have expected to vote for a cut again in March. Breeden says the conflict will have a significant, though highly uncertain, impact on inflation
• Dhingra says a severe and longer-lasting constraint on oil and gas supply could warrant a hold or increase in Bank Rate. Dhingra says if the lower-inflation scenario materialises she would expect to reduce Bank Rate, possibly quickly, over the rest of the year
• Greene says the risk of inflation persistence has risen, perhaps significantly, in light of the negative supply shock. Greene says preliminary staff estimates suggest CPI inflation will rise above 3% for much of this year
• Lombardelli says the conflict will be damaging for the UK economy, increasing inflation and reducing output. Lombardelli says she is prepared to act as needed to address any persistent inflationary effects that may emerge
• Mann says the balance between inflation and activity has shifted away from considering a cut towards considering a longer hold, or even a hike at some point
• Pill says the potential for second-round effects following recent events in the Middle East remains substantial. Pill says he remains alert to upside risks to price stability stemming from energy prices
• Ramsden says absent the conflict he would otherwise have voted for a 25 bps cut in Bank Rate at this meeting. Ramsden says the conflict has now led him to vote for a hold in Bank Rate
• Taylor says it is appropriate to pause to take stock but inappropriate to infer a directional shift from this meeting. Taylor says he currently sees a high bar to hiking

FISCAL:

• CPI inflation had previously been expected to fall back to around the 2% target from April, partly owing to measures in Budget 2025
• Disinflationary effect of the 2025 Budget had previously been expected to contribute to a fall in CPI inflation in 2026 Q2