BOE STATEMENT: Bank Rate held at 3.75%, as expected; voted 8-1 to hold rates, Pill voted for hike (exp. 9-0)

VOTE: 

• BoE maintains Bank Rate at 3.75% in 8-1 vote; Pill votes for 25bps hike

GUIDANCE: 

• BoE says it stands ready to act as necessary to ensure CPI inflation remains on track to meet 2% target in medium term
• BoE says larger or more protracted shock risking greater second-round effects would require more restrictive policy stance
• BoE says policy would need to be less restrictive if shock is very short-lived or if larger opening up of slack reduces medium-term inflationary pressures
• BoE says developments over next six weeks could shed light on scale and duration of conflict and propagation of shock
• MPC says monetary policy had been judged somewhat restrictive prior to the shock MPC says financial conditions have tightened

INFLATION: 

• BoE says conflict in Middle East has caused significant increase in global energy and other commodity prices
• BoE says CPI inflation will be higher in near term as result of new shock to economy
• BoE says it is alert to increased risk of domestic inflationary pressures through second-round effects in wage and price-setting
• BoE says risk of second-round effects will be greater the longer higher energy prices persist
• BoE says CPI inflation expected to be close to 3.5% in March, almost 0.5 ppts higher than expected in February Report
• BoE says CPI inflation expected to be around 3% in Q2 rather than 2.1% in February Report
• BoE says direct contribution of energy prices to CPI inflation in 2026 Q3 would be around 0.75 ppts
• BoE says indirect effects from firms passing on higher energy costs could push up CPI inflation by around 0.25 ppts in 2026 Q3
• BoE says CPI inflation could increase to up to 3.5% in Q3 BoE says preliminary staff estimates indicate CPI inflation likely to be between 3% and 3.5% over next couple of quarters
• Services consumer price inflation was 4.4% in January Higher frequency measures of underlying services inflation picked up a little
• BoE says CPI inflation expected to be a little over 3% in February
• Year-ahead inflation expectations in Bank/Ipsos and Citi measures had fallen ahead of Middle East conflict
• Firms’ year-ahead own-price inflation expectations edged down slightly in three months to February
• Near-term financial market-based measures of inflation compensation increased markedly since conflict started

ECONOMY: 

• BoE says prior to energy shock there had been continued disinflation in domestic prices and wages
• BoE says higher energy costs are likely to weaken economic activity
• UK GDP expanded by 0.1% in 2025 Q4, slightly below 0.2% expected in February Report
• BoE staff continue to estimate underlying quarterly GDP growth for Q1 around 0.1% to 0.2%
• Monthly GDP was flat in January Labour demand remained weak Labour Force Survey unemployment rate was 5.2% in three months to January
• Employment growth remained subdued Vacancies-to-unemployment ratio remained below Bank staff estimate of equilibrium rate
• BoE says economy was operating with margin of spare capacity
• BoE says increases in household fuel and utility costs and other prices would squeeze real incomes
• BoE says household and business confidence could deteriorate and precautionary saving could rise
• BoE says higher energy costs could result in more rapid or larger rise in unemployment
• Some mortgage lenders increased rates quoted on new mortgage products after rise in Term Overnight Indexed Swap rates
• Annual growth in M4-ex broad money remained robust at 3.6%

FORECASTS:

• Updated economic forecasts presented in three scenarios; see here
• Market-implied path for Bank Rate increased significantly since February Report
• Latest market-implied path for Bank Rate sloped slightly upwards over 2026
• Bank staff projections suggest direct contribution of energy prices to CPI inflation in 2026 Q3 around 0.75 ppts
• Basic private sector pay settlements expected to average 3.6% over 2026

COMMENTARY:

• Bailey says prolonged disruption to supply of oil, natural gas and other commodities increases upside risk to inflation Bailey says holding Bank Rate at this meeting is appropriate and he stands ready to act as necessary
• Breeden says absent the shock she would have expected to vote for a cut again in March Breeden says conflict will have significant but highly uncertain impact on inflation
• Dhingra says severe and longer-lasting constraints on oil and gas supply could warrant hold or increase in Bank Rate Dhingra says lower-inflation scenario would imply reducing Bank Rate, possibly quickly, over rest of year
• Greene says risk of inflation persistence has risen, perhaps significantly Greene says it is appropriate to hold Bank Rate to learn more about size and duration of shock and potential second-round effects
• Lombardelli says conflict will be damaging for UK economy, increasing inflation and reducing output Lombardelli says she is prepared to act as needed to address any persistent inflationary effects
• Mann says balance between inflation and activity has shifted away from considering a cut towards considering a longer hold or even a hike
• Pill says monetary policy must contain potential second-round effects from higher energy prices Pill says potential for second-round effects remains substantial
• Ramsden says he would otherwise have voted for a 25 bps cut in Bank Rate at this meeting Ramsden says conflict 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:

• BoE says CPI inflation had previously been projected to fall in 2026 Q2 alongside disinflationary effect of 2025 Budget
• BoE says CPI had previously been expected to fall back to around 2% target from April, partly owing to measures in Budget 2025