Why did the Bank of England decide to hold interest rates at 3.75% despite low domestic inflation pressures?

The Bank of England’s Monetary Policy Committee (MPC) held interest rates at 3.75% because, while underlying domestic inflation pressures are 'almost entirely absent' and prices are stable without the Middle East conflict, the war poses a significant risk of reigniting inflation—particularly through sustained high oil prices—potentially pushing inflation above the 2% target and triggering second-round effects like wage hikes and corporate price-setting behavior.

What specific inflation risks does the Bank of England associate with the Middle East crisis?

The Bank links the Middle East crisis to elevated oil prices—specifically warning that if Brent crude returns to and stays above $100 a barrel, UK inflation could rise to 4.1% next spring, far above its baseline forecast of 3.2%, and potentially embed broader inflationary pressures through consumer expectations, wage demands, and firms raising prices opportunistically—even if cost pressures are not directly felt.

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