Politics
The Bank of England has kept its interest rate at 3.75% while warning that it may need to raise rates to control inflation if the war in the Middle East continues for a prolonged period and energy prices remain high.
The Bank of England has kept its interest rate at 3.75% while warning that it may need to raise rates to control inflation if the war in the Middle East continues for a prolonged period and energy prices remain high. According to international news agencies, the Bank of England’s Monetary Policy Committee voted 6–3 to keep the interest rate at 3.75%, while three members voted in favor of a 0.25 percentage-point increase. The bank said the ongoing and prolonged conflict in the Middle East has pushed up the prices of crude oil, gas and other energy products, increasing the risk of inflation rising again in the United Kingdom. According to the Bank of England, the UK’s consumer price inflation rate reached 3.1% in August, while the central bank’s target is 2%.
The statement added that the direct effects of higher energy prices have already begun to appear in inflation. However, the second-round effects on wages and the prices of other goods and services remain limited so far. Bank of England Governor Andrew Bailey said that if volatility and increases in energy prices continue for an extended period, their impact on inflation could become greater, increasing the need for higher interest rates. Three members of the Bank of England’s Monetary Policy Committee supported raising the interest rate from 3.75% to 4%. They argued that the intensity and duration of the conflict in the Middle East could put further pressure on energy and food prices, while the risk of inflation rising again remains. Meanwhile, six members voted to keep the interest rate at its current level. They said that the second-round effects of higher energy prices remain limited so far and that, given the current economic conditions, the committee could wait for further evidence.
According to the Bank of England, the prolonged conflict in the Middle East has become the biggest uncertainty surrounding the future path of inflation in the United Kingdom. The central bank says global energy prices cannot be directly controlled through monetary policy. However, its aim is to ensure that inflation caused by higher energy prices does not become persistent. In its latest assessment, the bank estimated that if the energy crisis continues, inflation in the UK could rise to slightly above 4% at the beginning of 2027. The Bank of England’s decision came a day after the U.S. Federal Reserve raised interest rates. On September 16, the U.S. Federal Reserve increased its interest rate by 0.25 percentage points, bringing the target range to 3.75%–4%. This was the first U.S. interest rate increase since 2023.
The U.S. central bank described inflation as elevated and said the move was aimed at bringing inflation back toward its 2% target. If the conflict in the Middle East becomes prolonged and energy prices remain elevated, further interest rate increases could be considered to control inflation in the UK. If interest rates rise, the cost of household borrowing, mortgages and business financing could increase, potentially reducing spending and investment. On the other hand, the objective would be to limit inflationary pressures. It is worth noting that the Bank of England began cutting interest rates in 2024 and reduced the rate to 3.75% in December 2025. However, following the war involving Iran and the wider Middle East, disruptions to oil and gas supplies have pushed up global energy prices.
