Geopolitical Tensions Delay Bank of England's Interest Rate Cuts
By John Nada·Mar 10, 2026·6 min read
The war in Iran has caused the Bank of England to delay its expected interest rate cuts, raising concerns about inflation and economic growth amid rising energy prices.
The war in Iran has forced the Bank of England to reconsider its anticipated interest rate cut, previously expected for March. As geopolitical tensions escalate due to the conflict and its impact on oil and gas supplies, economists are now predicting a delay, potentially pushing the next rate cut to April or later.
Before the war in Iran erupted, the Bank of England was widely predicted to be on course to cut interest rates at its meeting next week. However, the U.S. and Israel's attack on major oil producer Iran, along with the turmoil engulfing the wider Middle East, have put the brakes on a March rate cut, as economists have since predicted.
Allan Monks, chief U.K. economist at JPMorgan, noted that while cuts are still possible in the first half of 2026, the immediate focus has shifted due to increased uncertainty around energy prices. “BoE cuts are possible in the first half of 2026, but March is off the table and April requires a clear calming of geopolitical tensions,” Monks stated in an emailed analysis. “For now, we delay the next cut to April, but the risks are already shifting towards a lengthier pause and larger growth impact,” he added.
Economists were confident that the central bank's policymaking committee, known as the MPC, would lean toward a rate cut to stimulate the British economy amid lackluster growth, a weakening jobs market, and a downward trend in the inflation rate. The MPC's cautious stance reflects a recognition of the complex interplay between geopolitical events and domestic economic indicators.
The ongoing turmoil has already damaged oil and gas infrastructure, notably affecting the Strait of Hormuz, a crucial maritime corridor for global energy supplies. The effective closure of this corridor jeopardizes global supplies and drives up energy prices. Anna Titareva, an economist at UBS Investment Bank, highlighted that policymakers might prefer to remain on hold during March's meeting to gain a clearer understanding of energy price trajectories.
Titareva pointed out that heightened uncertainty around the trajectory of energy prices and their impact on the inflation and growth outlook would likely overshadow the upcoming meeting. “With the geopolitical situation remaining highly uncertain, we think that by the time of the March meeting, the MPC will not be able to determine the nature of the shock with sufficient certainty,” she said. This uncertainty adds a layer of complexity to the MPC's decision-making process, as it weighs the potential benefits of rate cuts against the risks posed by volatile energy markets.
The U.K.'s vulnerability to energy price fluctuations is significant, given its dependence on imports for a substantial portion of its oil and gas needs. Recent data indicates that the U.K. imports around 40% of its oil supplies and up to 60% of its natural gas, despite having some dwindling oil and gas production of its own in the North Sea. This dependency makes the U.K. particularly susceptible to energy price shocks, which could have wide-ranging implications for households and businesses alike.
With inflation previously trending downward, rising energy prices could complicate the Bank’s ability to stimulate economic growth through rate cuts. The report noted that inflation had dropped to 3% in January but could rise again if energy prices remain elevated, placing pressure on the MPC to respond. The last inflation reading in January showed the rate of price rises had cooled to 3%, down from 3.4% the previous month, spurring hopes that the BOE's forecast for inflation to fall toward the bank's 2% target was on track.
However, the current spike in energy prices leaves the BOE with a real dilemma. Monks noted, “Still restrictive rates and an ongoing deterioration in the jobs market create pressure for it to ease further. But the Bank now faces another wave of inflation barring a significant and rapid de-escalation in the Middle East.” The complexity of these circumstances leaves the Bank's path forward uncertain, as it must navigate competing pressures from inflation, economic growth, and employment levels.
The British government’s approach to monitoring energy prices reflects an understanding of this sensitivity. It has indicated that it will do all it can to protect the U.K.'s energy security, but acknowledged in a factsheet that “the price of oil and gas is determined by international markets, not the U.K.. We are price-takers, not price-makers.” This recognition underscores the limitations of domestic policy responses in the face of global market dynamics.
The government has also implemented measures such as an energy price cap, which is the maximum rate households can be charged for their energy supplies. This cap is designed to protect consumers from sudden price hikes, but the government's review of the cap in July could lead to increased costs for consumers if wholesale prices stay high. The biggest driver of energy prices for homes and businesses is the cost of wholesale gas set by international markets, indicating that the situation remains precarious.
As the situation in the Middle East remains volatile, the Bank of England faces a real dilemma. The interplay between still-restrictive interest rates and a deteriorating jobs market adds pressure to ease monetary policy. However, the emergence of a new wave of inflation linked to energy supply disruptions complicates the landscape significantly, making the MPC's path forward uncertain. The urgency of the situation is compounded by the prospect of escalating tensions and the possibility of further disruptions to energy supplies.
In this context, the Bank's caution appears warranted. The possibility of a prolonged pause in rate cuts, as suggested by UBS, indicates that the economic outlook may be heavily influenced by geopolitical events. The implications of the ongoing conflict in Iran extend beyond immediate energy concerns, potentially reshaping the U.K.'s economic trajectory and monetary policy landscape. Economists emphasize that the duration of the war and the extent to which energy supplies are disrupted will play a critical role in determining the Bank's future actions.
Ultimately, how the Bank of England navigates these challenges will be critical. The intersection of geopolitical risks and economic policy will require careful monitoring as market conditions evolve, particularly in the energy sector. The coming months will likely reveal whether the MPC can manage these pressures effectively and what that means for the broader economic landscape. As the Bank contemplates its next moves, the delicate balance between fostering economic growth and controlling inflation will be more important than ever, with decisions made now likely to resonate across the economy for years to come.