Bank of England holds interest rates at 3.75% but hints at future hikes

Anna Wise and Henry Saker-Clark, Press Association

The Bank of England has held interest rates at 3.75% but warned that the Middle East energy shock could drive up inflation and lead to a hike in rates.

It said that in a worst-case scenario where oil and gas prices stay higher for a longer amount of time, UK inflation could rise to as much as 6.2%.

The Bank considered several ways that events could unfold but a worst-case scenario could lead to multiple rate rises and an increased risk of recession.

Eight members of the Bank’s nine-person Monetary Policy Committee (MPC) voted to hold interest rates steady, while one member opted for a hike to 4%.

Andrew Bailey, the Bank’s governor, said he felt borrowing costs were at a “reasonable place given the situation of the economy and the unpredictability of events in the Middle East”.

But he said the Bank was monitoring the war’s “impact on the UK economy very closely”.

The US-Israel war with Iran and the closure of the Strait of Hormuz has sent oil prices soaring, to highs of about 126 dollars a barrel on Thursday, which has already driven up UK inflation.

The rate of Consumer Prices Index (CPI) inflation rose to a three-month high of 3.3% in March, the latest official data showed, on the back of accelerating fuel prices.