Why did the Bank of England hold interest rates at 3.75% despite warning that 'higher inflation is unavoidable'?

The Bank of England held interest rates at 3.75% because, as Governor Andrew Bailey stated, the decision was 'reasonable given the situation of the economy and the unpredictability of events in the Middle East'; the Monetary Policy Committee (MPC) judged that the size and duration of the energy price shock — driven by the war in the Middle East — remained uncertain, and thus opted to wait before acting, even while acknowledging that 'higher inflation is unavoidable' and that a more 'forceful' response might be needed if energy costs stayed persistently high.

What is the Bank of England's worst-case inflation scenario linked to the Middle East conflict, and what would it mean for interest rates and unemployment?

The Bank’s worst-case scenario — 'scenario C' — assumes oil prices rise above $130 a barrel and remain elevated for a prolonged period; under this scenario, UK inflation would likely peak at 6% by the start of 2027, unemployment would rise to 5.6%, and interest rates would need to increase to 5.25% to keep inflation under control.

Bank of England Warns 'Higher Inflation Unavoidable' After Holding Interest Rates

Apr 30, 2026

The Bank of England held interest rates at 3.75% but warned higher inflation is unavoidable due to rising energy and fertilizer costs linked to Middle East conflicts. Scenarios suggest oil prices peaking at $130/barrel could push UK inflation to 6% by 2027.

theguardian

2026-04-24

Bank of England Surveys Indicate Energy Shock Not Fueling Wages

2026-04-30

Bank of England Holds Interest Rates Despite 'Trumpflation' Warning

2026-04-30

Bank of England Warns 'Higher Inflation Unavoidable' After Holding Interest Rates

2026-06-12

Bank of England Expected to Hold Interest Rates Amid Energy Price Risks

2026-06-17

BOE Expected to Hold Rates as Energy Shock Recedes