The Bank of England left borrowing costs at 3.75% in April and warned it would act forcefully if oil prices reached and remained at $130 a barrel for a number of months, after Brent crude hit $126 on Thursday — its highest level for four years.
Governor Andrew Bailey, fronting the decision, said plainly: "The war in the Middle East is causing inflation to rise again this year." He added the Bank's task in the weeks ahead: "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."
The numbers behind that language matter. UK inflation rose to 3.3% in the year to March, and the Bank signalled rates could rise this year if oil prices stay elevated. At the Bank's April meeting, Huw Pill was the only member of the nine-member Monetary Policy Committee to vote for a rate rise this month — a solitary dissent that underlines how close the committee sits to shifting policy.
Market forecasters are already adjusting. Capital Economics, through Ruth Gregory, warned "the chances of near-term rate hikes are rising" even as she cautioned that "our best guess is still that rates will remain unchanged this year." Gregory added a clear caveat: "But one or two hikes in the coming months are certainly possible, especially if [oil] prices remain around $115 per barrel, or rise even further."
The Bank framed its pause as conditional. Officials drew up a range of scenarios because the path of the Iran war — described repeatedly as a "significant energy price shock" — is uncertain. The policymakers said the direct trigger for forceful action would be oil settling at roughly $130 a barrel for several months, a level that would sustain second-round inflation pressures rather than a short, volatile spike.
That conditionality matters for households and businesses already feeling price pressure. The government has warned people could face higher energy, food and flight ticket prices as a result of the war, and Bank staff modelled outcomes that still leave UK growth weak: expansion of 0.8% in the best case this year and 0.7% if conditions worsen, a path that the Bank says should avoid a technical recession but would not deliver a clear recovery.
The tension in the Bank's message is sharp. Officials kept the official rate unchanged even as one policymaker voted for a rise and as oil pricked levels not seen in four years. Brent's move to $126 on Thursday came after reports the US may resume attacks on Iran — a development the Bank flagged as the sort of shock that could force it off the sidelines. Capital Economics' increased probability of near-term hikes sits uneasily beside the Bank's insistence that it prefers to wait for sustained evidence of higher energy costs.
For market participants the next moves are straightforward in theory and messy in practice: if oil continues to climb from $126 toward $130 and stays there, the Bank has said it will act. If oil retreats toward the recent trading range around $95 a barrel or stabilises near $115 per barrel, the Bank's baseline—one that still allows for a modest rise or two in some scenarios—looks more secure.
This matters today because inflation is already above target and the policy latitude the Bank retains depends on whether a temporary energy shock becomes a persistent one. The single most consequential unanswered question now is whether Brent will cross and remain at about $130 a barrel for a number of months — because if it does, the Bank's pause will quickly become a pivot.
For background on how banks elsewhere are handling earnings and balance-sheet pressures during this period, see reporting on Uba Bank's results Uba Bank posts stronger income but Q1 profits fall as assets hold steady, United Bank For Africa's balance-sheet update United Bank For Africa posts N33.2 trillion assets and raises N395 billion after 2025 results, and the wider fiscal choices facing governments Bola Tinubu seeks Senate approval for $516m Deutsche Bank loan for highway.
