If there is a prolonged period of disruption and prices surge further, the MPC has little choice but to sit on its hands

March 19, 2026

Rob Morgan, Chief Investment Analyst at Charles Stanley, part of Raymond James Wealth Management, comments on the Bank of England holding rates at 3.75% and how the Iran-driven energy shock is reshaping the outlook.

Rob Morgan, Chief Investment Analyst at Charles Stanley, part of Raymond James Wealth Management, comments:

“The Bank of England maintained interest rates at 3.75% today as geopolitical events significantly complicate the outlook for inflation.

“Previously, a benign path for price rises looked assured for 2026 amid a stagnating economy, receding wage pressures, and moderating energy and food prices. Markets, completely understandably, priced in multiple rate cuts before the year end as a result.

“That thinking has been completely upended by the Iran energy shock, and the BoE has now retreated to “wait and see” mode until the dust settles. We must now consider the base case is inflation stuck in a zone north of 2.5% rather than falling close to the 2% target as previously hoped – unless there is a resolution to the Middle East crisis in short order.

“The outlook from here now depends largely on the duration of the conflict and longevity of the constraints on oil and gas markets. If the price spike proves short lived and reverses, there’s a good chance that policymakers revert to their previous bias of cutting rates. But if there is a prolonged period of disruption and prices surge further, or stay high, the MPC has little choice but to sit on its hands.

“The UK is acutely sensitive to energy and import costs, and any move to cut rates will likely be met by weakness in the pound, which would only worsen domestic price rises. Equally, the Bank will be averse to hiking rates at this juncture. They are already in restrictive territory given the fragile state of the economy, and any move higher would further weigh on growth. There’s also the possibility the situation may prove temporary and any extra pressure applied will have been unnecessary. Realistically, this means a holding pattern for rates from here until there is more clarity.”