LONDON – With hostilities intensifying in the Gulf and front-month Brent crude holding above USD 110/bbl, the Bank of England’s decision to leave borrowing costs unchanged came as little surprise.
As widely expected, the Monetary Policy Committee maintained Bank Rate at 3.75%. However, the unanimous 9–0 vote to hold marked a notable shift, defying expectations for a split decision and signalling a temporary consolidation in policy thinking.
Deutsche Bank’s Sanjay Raja said the evolving energy shock had effectively unified the Committee. “The size and scale of the shock was enough to coalesce the entire MPC to pause and reassess the policy outlook – underscoring the magnitude of the potential inflation shock.”
Change of guidance
In its statement, the Bank highlighted that the escalation in the Middle East had driven a sharp increase in global energy and commodity prices. This, it noted, would likely feed through to household fuel and utility bills, while also exerting broader upward pressure on firms’ costs.
Notably, the Committee dropped prior guidance that had pointed towards further rate cuts, replacing it with language emphasising the need to “monitor closely the situation in the Middle East and its impact on global energy supply and energy prices.” The adjustment marks a clear pivot away from an easing bias that had dominated earlier in the year.
Rate markets have since repriced materially, with expectations for cuts in 2026 largely unwound and a growing bias towards tightening emerging, with a first hike now seen around mid-year.
Drops of easing bias amid oil surge
As is now standard, members published summaries of their individual positions. Governor Andrew Bailey reiterated the limits of monetary policy in addressing supply-side shocks. “Monetary policy cannot reverse this shock to supply. Its resolution depends on action taken at its source to restore the safe passage of shipping through the Strait of Hormuz. Monetary policy must, however, respond to the risk of a more persistent effect on UK CPI inflation.”
External member Swati Dhingra acknowledged that higher energy prices were now inevitable but stressed that the persistence and magnitude of the shock would be critical in shaping the appropriate policy response.
Raja added that the trade-offs facing policymakers are set to become increasingly acute. While markets have moved to price in multiple rate hikes, Deutsche Bank does not yet see tightening as the base case. “Governor Bailey’s comments suggest caution against drawing strong conclusions about rate hikes at this stage.” The bank has accordingly revised its call and now expects no rate cuts this year.
SocGen’s Sam Cartwright struck a similar tone, arguing that the Bank may remain on hold for an extended period to prevent a de-anchoring of inflation expectations. He added that market pricing for an additional 50bps of tightening – implying around 70bps of hikes in 2026 – appears excessive. In a more benign scenario, where oil prices ease back towards USD 70/bbl by Q3, SocGen would instead expect a return to easing, with around 75bps of cuts taking Bank Rate towards a 3% neutral level.
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- Unanimous vote defies expectations
- Energy shock forces pivot from committee
- Forward guidance gets reset, rate cuts priced out
- Governor Bailey cautions against dismissing cuts
By Harry Daniels
LiveSquawk News
@HarryDaniels71
19 March 2026 | 16:30 GMT
LONDON – With hostilities intensifying in the Gulf and front-month Brent crude holding above USD 110/bbl, the Bank of England’s decision to leave borrowing costs unchanged came as little surprise.
As widely expected, the Monetary Policy Committee maintained Bank Rate at 3.75%. However, the unanimous 9–0 vote to hold marked a notable shift, defying expectations for a split decision and signalling a temporary consolidation in policy thinking.
Deutsche Bank’s Sanjay Raja said the evolving energy shock had effectively unified the Committee. “The size and scale of the shock was enough to coalesce the entire MPC to pause and reassess the policy outlook – underscoring the magnitude of the potential inflation shock.”
In its statement, the Bank highlighted that the escalation in the Middle East had driven a sharp increase in global energy and commodity prices. This, it noted, would likely feed through to household fuel and utility bills, while also exerting broader upward pressure on firms’ costs.
Notably, the Committee dropped prior guidance that had pointed towards further rate cuts, replacing it with language emphasising the need to “monitor closely the situation in the Middle East and its impact on global energy supply and energy prices.” The adjustment marks a clear pivot away from an easing bias that had dominated earlier in the year.
Rate markets have since repriced materially, with expectations for cuts in 2026 largely unwound and a growing bias towards tightening emerging, with a first hike now seen around mid-year.
As is now standard, members published summaries of their individual positions. Governor Andrew Bailey reiterated the limits of monetary policy in addressing supply-side shocks. “Monetary policy cannot reverse this shock to supply. Its resolution depends on action taken at its source to restore the safe passage of shipping through the Strait of Hormuz. Monetary policy must, however, respond to the risk of a more persistent effect on UK CPI inflation.”
External member Swati Dhingra acknowledged that higher energy prices were now inevitable but stressed that the persistence and magnitude of the shock would be critical in shaping the appropriate policy response.
Raja added that the trade-offs facing policymakers are set to become increasingly acute. While markets have moved to price in multiple rate hikes, Deutsche Bank does not yet see tightening as the base case. “Governor Bailey’s comments suggest caution against drawing strong conclusions about rate hikes at this stage.” The bank has accordingly revised its call and now expects no rate cuts this year.
SocGen’s Sam Cartwright struck a similar tone, arguing that the Bank may remain on hold for an extended period to prevent a de-anchoring of inflation expectations. He added that market pricing for an additional 50bps of tightening – implying around 70bps of hikes in 2026 – appears excessive. In a more benign scenario, where oil prices ease back towards USD 70/bbl by Q3, SocGen would instead expect a return to easing, with around 75bps of cuts taking Bank Rate towards a 3% neutral level.