Rising energy costs, triggered by the conflict in Iran and the closure of the Strait of Hormuz, have dashed hopes for an interest rate cut next week, according to economists.
With oil and gas prices surging, analysts now expect the Bank of England to maintain rates at 3.75% rather than cut borrowing costs as previously anticipated.
The ongoing conflict has reignited inflation risks, as wholesale energy prices threaten to drive consumer prices higher once again.
This raises the likelihood that rate cuts could be postponed until the second quarter or possibly abandoned altogether.
Britons, already struggling with fuel and household expenses, may face even more challenging conditions as the Bank of England prioritises price stability over reducing interest rates amid the energy crisis in the Middle East.
Edward Allenby, senior UK economist for Oxford Economics, said: “The UK inflation outlook was starting to brighten, but the conflict in the Middle East has thrown a spanner in the works.
“Against this backdrop, it’s almost certain that the MPC will keep bank rate unchanged at 3.75% at the March meeting.
“If the shock proves short-lived and recent price rises fully reverse, we still think there’s a reasonable chance that the MPC will resume its cutting cycle either in April or June.
“However, if the surge in energy prices persists or goes higher, the MPC will be set for an extended pause.”
Thomas Pugh, chief economist for RSM UK said: “Reflecting the scale of volatility we’re all coming to terms with, it was only two weeks ago that a March rate cut looked like a dead cert.
“A cut clearly makes no sense now.
“Given uncertainty about the outlook for energy prices, inflation and the economy, the most sensible thing for the Bank of England to do now is wait for more clarity.
“This rules out a rate cut next week and probably one in April too, unless there’s a rapid resolution to the crisis.”
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