Bank of England Holds Rate at 3.75% Amid Iran War Inflation Threat

The Bank of England kept its policy rate at 3.75%, warning that an escalation in the Iran conflict could push inflation above 4% next year.

The MPC’s Voting Pulse

The Monetary Policy Committee split 6‑3 to leave rates unchanged, with Governor Andrew Bailey downplaying any imminent tightening and stressing the UK’s still‑weak growth outlook.

Middle‑East Flashpoint: A New Inflation Catalyst

Rising Iran‑US tensions could lift crude to $100 a barrel, a scenario the BoE labels “adverse,” projecting inflation could spike to 4.5% by mid‑2027.

Market Reaction Snapshot

■Over 90% probability priced in for a hold on rates.

■Investors priced a 4% rate hike by year‑end, widening sovereign‑bond spreads modestly.

■The pound slipped 0.5% against a basket of risk‑off currencies.

■Equity indices managed a 0.8% gain despite the central‑bank decision.

Oil Price Trajectory and Forward‑Looking Inflation Curve

Under its central forecast, oil retreats to around $71 a barrel, capping UK inflation near 3.2%. In a milder war scenario, inflation could settle at 3%, paving the way for a potential rate cut later in the year.

Captain Rıza Deniz – The energy‑supply shock in the Middle East is tightening freight rates and squeezing raw‑material flows across the globe. The BoE’s cautious stance, dovetailing with Europe’s effort to manage energy import costs, will amplify cost pressures for the shipping sector. Preventing a sticky‑inflation path is essential for keeping the BDI and tanker tolls stable, a key factor for global supply‑chain resilience.