Bank of England Holds Rates at 3.75% as Iran War Threatens UK Inflation Rebound
Updated
Updated · BBC.com · May 20
Bank of England Holds Rates at 3.75% as Iran War Threatens UK Inflation Rebound
8 articles · Updated · BBC.com · May 20
UK interest rates stayed at 3.75% in April, with the Bank of England warning the next move could be up if oil prices keep lifting inflation.
April CPI slowed to 2.8% from 3.3%—a bigger drop than expected—largely because the energy price cap cut typical annual bills by £117, but that cap is set to rise again from 1 July.
The Bank said the US-Israel war with Iran has upended earlier expectations for inflation to return near its 2% target, and in April outlined a worst-case scenario of inflation reaching 6%.
That leaves policymakers balancing renewed price pressure against a weakening economy: unemployment rose to 5%, vacancies fell to 705,000, and early estimates showed 210,000 fewer payrolled employees in April.
Food inflation eased to 3%, but manufacturers warn it could hit 10% by end-2026 as higher energy, wage and tax costs feed through, reinforcing the risk of delayed or reversed rate cuts.
Is this a temporary crisis or the start of a new era of permanently high inflation?
Will central banks sacrifice growth to fight war-fueled inflation, risking a global recession?
As a new Fed chair takes over, will US policy pivot away from fighting inflation?
Bank of England Holds Rates as UK Inflation Hits 3.3% Amid Iran Conflict and Energy Crisis
Overview
In early 2026, the ongoing conflict in Iran triggered major energy market disruptions, leading to a sharp rise in energy prices and intensified economic pressures on the United Kingdom. These disruptions directly caused renewed inflationary concerns, with the UK's Consumer Price Index climbing and motor fuel prices seeing their largest monthly jump since 2022. As a result, the UK faces a dampened growth outlook, with policymakers struggling to balance rising inflation against weak economic growth. The Bank of England has held interest rates steady, but uncertainty remains high as the country navigates the complex challenges of energy shocks and geopolitical instability.