Bank of England Holds Rate at 3.75% as War in Iran Hits UK Economy
By Aboki Forex —
The Bank of England is set to keep interest rates unchanged this week. Policymakers are caught between rising energy costs from the Middle East war and a slowing economy.
Most economists do not expect a rate hike on Thursday. They say the Iran conflict is pushing up inflation but the UK economy is too weak for tighter policy.
The Monetary Policy Committee is widely expected to hold the base rate at 3.75%. Rates had been falling from a peak of 5.25% but the US-Israel war with Iran ended those cuts.
Fuel prices jumped in March because of the conflict. Household energy bills will rise from the summer. But raising rates now could hurt growth even more.
New official data shows GDP fell by 0.1% in April. That is the first contraction in eight months. Some sectors are already feeling the pain from the Middle East crisis.
Suren Thiru, chief economist for ICAEW, said a hold on Thursday is highly certain. He said rate-setters will stay watchful given the poor economic data and global uncertainty. He added that rates may stay at 3.75% for the rest of the year but will become an increasing burden on businesses and households.