Star Metro - Bank of England holds interest rate amid 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 BoE "stands ready to act" to tackle any surge in inflation, it said in a statement.

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.

"In contrast to the energy price shock in 2022, this shock was occurring at a point when growth was below potential," the BoE said in its meeting minutes.

The energy shock unleashed by the Middle East war will also top the agenda at the ECB meeting, as fears grow of a major hit to the eurozone economy.

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 retail banks tend to pass on BoE rate cuts to their customers, easing the cost of mortgages and business loans.

O.Ouellet--SMC