UK Interest Rates Hinge on Middle East Conflict

The UK's interest rates remain steady at 3.75%, according to the Bank of England, despite underlying pressures on inflation being almost entirely absent in the domestic economy. Senior central bankers believe that the conflict in the Middle East is currently preventing a drop in UK interest rates.

Prices are stable and would be rising steadily at the central bank's 2% target without the war. However, Threadneedle Street officials worry that retail prices will increase if companies spot an opportunity to do so, taking advantage of consumers' general expectation that the war has raised production costs.

The Bank's forecasters expect inflation to peak at 3.2% next spring, but it could be much higher at 4.1% if the war persists and Brent crude prices go back above $100 a barrel and stay there.