#uk-interest-rates

#uk-interest-rates

Financial markets are pricing in roughly a 70 per cent chance that the Bank of England will increase interest rates by a quarter percentage point before the end of the year, a stark reversal from expectations only a fortnight ago when traders anticipated multiple rate cuts.

Before the Iran war began, a rate cut at the Bank's next meeting on 19 March had been an 80% chance, but policymakers are now expected to wait to see how the conflict develops with a 99% probability of a hold at the meeting and no rate cuts for the rest of 2026, markets indicate.

The think tank highlighted that the Bank of England may face a new inflationary "shock" from rising energy costs, which could complicate Chancellor Rachel Reeves's economic plans. Energy markets have become volatile since tensions escalated between the United States, Israel, and Iran. Iran has threatened to block the Strait of Hormuz, a vital global shipping route, while Qatar Energy has suspended liquefied natural gas production following reported attacks on its facilities.