- Bank Rate seen on hold amid heightened uncertainty
- MPC expected to vote 7–2 to keep policy unchanged
- Energy shock muddies inflation outlook
- Markets push back rate cut bets
- Analysts expect a cautious “wait-and-see” stance 

By Harry Daniels
LiveSquawk News
@HarryDaniels71

18 March 2026 | 16:30 GMT

LONDON – The ongoing Middle East conflict is creating fresh headwinds for the UK economy, leaving the Bank of England with limited scope to respond in the near term.

The Monetary Policy Committee is widely expected to vote 7–2 to hold Bank Rate at 3.75% when it announces its decision at midday on Thursday.

A day ahead of the BoE and ECB rate decisions, both North American central banks opted to leave policy unchanged. Bank of Canada Governor Tiff Macklem said it was too early to assess the economic impact of the conflict, though he warned it would likely lift global inflation in the near term. A similar message was echoed by Federal Reserve Chair Jerome Powell later in the day.

Commentators expect the MPC to strike a comparable tone, emphasising caution amid heightened uncertainty.

Sanjay Raja of Deutsche Bank said he anticipates a dovish “wait-and-see” stance. “The MPC won't be rushed into a rate cut on 19 March. Geopolitical events have clouded the economic outlook. Barring an imminent resolution to the Iran shock, the effects on the economy will be meaningful, with GDP lower, unemployment higher, and inflation pushing well above the BoE's February projections.”

In recent weeks, many analysts have abandoned calls for a March cut following the onset of hostilities, citing the risk of firmer near-term inflation alongside weaker medium-term growth.

“The disinflation path no longer looks assured,” Raja added. “Inflation expectations could see a further ratcheting up given the sensitivity to household expectations and energy prices.”

Domestically, activity since the last meeting has been mixed. GDP growth remained subdued at the start of the year, with the Office for National Statistics reporting a 0.2% expansion in the three months to January—slightly below forecasts but an improvement on the prior period.

Inflation showed tentative signs of easing, with headline CPI rising 3.0% y/y in January, in line with expectations. On the labour front, wage growth has continued to cool, while unemployment has edged higher.

These dynamics had led markets to price in two rate cuts this year prior to the conflict. That view has since been reassessed.

Allan Monks of JPMorgan said the MPC is now likely to sound more cautious on easing, highlighting two key factors.

First, it remains too early to judge the scale and persistence of the inflationary impact from the energy shock, given geopolitical uncertainty and volatile market pricing.

Second, the shock presents a policy dilemma: whether to look through what may prove to be a temporary inflation spike to support growth, or to act more forcefully to prevent second-round effects following recent inflationary pressures.

“Both of the points above favour waiting longer to better understand the situation,” Monks said.

Nonetheless, analysts continue to forecast two cuts this year, albeit on a delayed timeline.

“Our current forecast shows BoE cuts in April and July, but that is based on the assumption that oil declines towards $80 this month,” Monks noted. “This looks increasingly unlikely, and based on current market pricing, the risks are tilted towards an extended pause.”

Deutsche Bank’s Raja similarly cautioned that recent developments have disrupted the expected easing path. “The next rate cut, we think, will come in Q2 2026 (June), when the MPC sees more evidence of falling core inflation—likely following the April CPI report—alongside a resolution of the Iran conflict. Thereafter, we see one more rate cut in Q4 2026.”