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The Bank of England has updated its forecasts for the consumer price index (CPI), predicting that inflation will rise to 3.5% in the third quarter of 2026, up from the previous estimate of 2%.
Officials have linked this increase to the conflict in the Middle East, which has significantly altered the economic outlook and led to an “inflationary shock” in energy markets.
Today, the Bank’s nine-member Monetary Policy Committee unanimously decided to maintain the base interest rate at 3.75%.
This decision will keep borrowing costs stable for households and businesses.
With inflationary pressures anticipated to continue throughout the year, markets now consider further interest rate cuts in 2026 unlikely, reversing earlier expectations of easing.
Sarah Breeden, deputy governor of the Bank of England, shared: “Conflict in the Middle East has significantly shifted the outlook for inflation. Absent this shock, the underlying disinflation process had continued broadly as I expected, and, consistent with my vote in February, I would have expected to vote for a cut again in March.
“But the conflict will have a significant, though at this point highly uncertain, impact on inflation. I associate myself strongly with the MPC’s collective assessment and communications at this meeting.
Monetary policy cannot influence global energy and commodity prices, but it can, and it must aim to ensure that the economic adjustment to them occurs in a way that achieves the two per cent target sustainably.
How that adjustment occurs is hugely uncertain, with risks to both sides, and I vote to hold at this meeting. The Committee will learn more by its April meeting about the scale and duration of the shock, as well as its possible second-round effects, and so the implications for monetary policy.”
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