BoE holds rates amid Middle East war and high unemployment

2026-03-19 - 15:31

The Bank of England warned ‘inflation will be higher in the near term as a result of the new shock to the economy.’ (EPA Images pic) LONDON: The Bank of England (BoE) left its benchmark interest rate at 3.75 percent on Thursday as it monitors the inflation outlook, pressured by rising energy prices from the Middle East war. “War in the Middle East has pushed up global energy prices,” BoE governor Andrew Bailey said, adding that “if it lasts, it will feed into higher household energy bills.” All nine policymakers voted to hold the benchmark rate, the first unanimous vote since September 2021. The widely expected decision came as several major central banks are treading cautiously amid fears of an energy shock, with the European Central Bank (ECB) also set to keep borrowing costs unchanged Thursday. Prior to the outbreak of the war, analysts had seen a March rate cut as a near certainty as UK inflation was expected to fall toward the bank’s two-percent target. However, the BoE warned Thursday that “inflation will be higher in the near term as a result of the new shock to the economy.” The central bank now projects inflation at 3.0 percent in the second quarter of the year and 3.5 percent in the third quarter. The fresh concerns over inflation come as Britain’s economy has stagnated and its labour market remains weak. The US Federal Reserve kept rates on hold Wednesday, followed by the Bank of Japan. The BoE last cut its interest rate at its policy meeting in December, opting for a quarter-point reduction to 3.75 percent. While a cut to the interest rate can help individuals and businesses taking out loans, it reduces returns on savings deposited in banks. Britain’s unemployment rate has remained at a five-year high, official data showed Thursday, ahead of an expected decision by the Bank of England to hold interest rates steady as inflation concerns dominate the outlook. The unemployment rate stood at 5.2 percent in the three months to January, while wage growth fell, the Office for National Statistics said. British businesses warned that the economic fallout from the war in the Middle East and the rollout of AI threaten to further weaken hiring. “There are clear signs that pressure is growing on the labour market,” David Bharier, head of research at the British Chambers of Commerce. “People everywhere are struggling to find jobs, youth employment is falling faster still, and the UK faces the prospect of a jobless generation,” warned Helen Dickinson, head of the British Retail Consortium. “The loss of almost 400,000 retail jobs over the past decade is the loss of hundreds of thousands of opportunities for young people to start earning for themselves,” she added. Youth unemployment among 16 to 24-year-olds edged down slightly in the latest reported period but remained around 16 percent, close to 10-year highs.