LONDON, March 19 (Xinhua) -- The Bank of England (BoE) has kept its benchmark interest rate unchanged at 3.75 percent, given price hikes of energy and other commodity caused by the conflict in the Middle East, Britain's central bank said in a statement Thursday.
The United States and Israel launched massive attacks on Iran on Feb. 28, disrupting global shipping, sending oil prices soaring and shaking the global economy.
European gas and oil prices rose sharply in early trading on Thursday. The Dutch TTF benchmark, a key reference for European gas supply contracts, surged more than 30 percent to 70.7 euros (81.3 U.S. dollars) per megawatt-hour at the open, before easing to around 67 euros (77 dollars) per megawatt-hour. The price has more than doubled from around 32 euros (37 dollars) megawatt-hour before the conflict began.
Oil prices also moved higher. Brent crude, the international benchmark, rose to above 116 dollars per barrel in early trading.
Prior to the conflict, there have been continued disinflation in domestic prices and wages, the BoE's Monetary Policy Committee (MPC) said, adding that "CPI inflation will be higher in the near term as a result of the new shock to the economy."
Britain's annual inflation rate fell to 3.0 percent in January amid easing price pressures, earlier data from the Office for National Statistics (ONS) showed.
However, based on energy prices as of close of business on March 16, CPI inflation is expected to be close to 3.5 percent in March, almost 0.5 percentage points higher than expected in the February Report, according to the MPC.
The Committee also noted that even a short-lived conflict is likely to lead to a delay in restoring energy production back to normal levels, as well as the possibility of lingering instability, which could leave energy prices elevated for a period of time.
A more protracted conflict could result in broader supply chain disruptions that could push up inflation further.
"The outbreak of conflict in the Middle East has re-framed the inflation landscape, both globally and in the UK," said Anna Leach, chief economist at the Institute of Directors.
She noted that with significant rises of energy prices and market volatility, it's no surprise to see a unanimous vote from the MPC for a rate hold while they assess the situation.
"Only a few weeks ago, a rate cut in March looked like a done deal. But the outlook facing the BoE has shifted materially since then," Alpesh Paleja, deputy chief economist at the Confederation of British Industry, said.
Higher global energy prices and renewed supply bottlenecks could delay the CPI return to the 2 percent target by almost a year, after the BoE had previously expected inflation to reach that point this summer, Paleja added.
"Today's decision to hold rates at 3.75 percent was widely expected," said David Bharier, head of research at the British Chambers of Commerce (BCC). He said BCC anticipates no further rate cuts in the near term, and this is concerning news for businesses looking to borrow as a springboard for investment and growth.
The MPC is alert to the increased risk of domestic inflationary pressures through second-round effects in wage and price-setting, noting that "the risk of which will be greater the longer higher energy prices persist."
Britain's economy remained weak even before the conflict broke out. Its real gross domestic product (GDP) registered zero growth in January 2026, and the unemployment rate hit 5.2 percent between November 2025 and January 2026, the highest in around five years, according to the ONS.
The MPC said it will continue to monitor closely the situation in the Middle East and its impact on global energy supply and prices, and act as necessary to ensure that CPI inflation remains on track to meet the 2 percent target in the medium term.
