ECB, BOE likely to hold rates amid energy shock uncertainty

April 27, 2026 (MLN): The European Central Bank (ECB) and the Bank of England (BOE) are expected to keep their benchmark interest rates unchanged on Thursday, as policymakers wait for greater clarity on the energy shock stemming from the ongoing Middle East conflict, according to a report by The Wall Street Journal.

The uncertainty centres on the Strait of Hormuz, which remains largely closed to shipping, keeping energy prices elevated and complicating the monetary policy outlook for European central bankers.

At their March meetings, both institutions had signalled readiness to raise borrowing costs in response to the energy-driven price surge, prompting investors to price in a series of rate hikes in the near term.

However, officials subsequently walked back the urgency of that guidance, emphasising that rate increases would only follow if wage growth accelerates and broader price pressures become entrenched.

Inflation has already climbed as a result of the conflict. Eurozone consumer prices rose 2.6% year-on-year in March, up from 1.9% in February, while UK inflation increased to 3.3% from 3.0%, per the WSJ report.

Carsten Brzeski, chief economist at ING Bank, was quoted by the Journal as saying the ECB should avoid panic but must project firm resolve to act if conditions warrant.

The primary concern for policymakers is the risk of so called second-round effects where prolonged high energy costs push workers to demand steeper wage increases and businesses pass on higher costs to consumers, keeping inflation above target for an extended period.

For now, UK wage data offers some reassurance, with the BOE's regional agents reporting average pay settlements of around 3.5% for 2026, only marginally above the level consistent with the 2% inflation target.

ECB President Christine Lagarde, in a speech last week cited by the WSJ, described the situation as "exceptionally hard to gauge," pointing to the stop-start nature of the conflict cycling through war, ceasefires, peace talks, and naval blockades.

The next key decision window for both central banks is June, by which point more data on wage dynamics and the strait's status will be available.

Deutsche Bank economists, as quoted in the WSJ, said the ECB will wait to gather more information before deciding whether to tighten policy.

Analysts at RBC Capital Markets noted that the BOE faces comparatively less pressure to move early, given that its policy rate already acts as a drag on economic growth, whereas the ECB's rate is currently set at a neutral level.

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