Central Bank Commentary (March 2026): Fed, BoJ, SNB and BoE
A supply shock rewrites the policy outlook.
On February 28, the United States and Israel launched coordinated strikes on Iran. Within days, tanker traffic through the Strait of Hormuz — the chokepoint through which roughly one-fifth of global crude oil and LNG trade normally flows — was severely disrupted. What followed was not just another jump in oil prices. It was the return of a familiar central-bank problem, but in a form that is uneven and potentially far harder to manage than markets first assumed.
In the Compounding Oil Shock series, I trace the early evolution of the energy shock (Part I), examine how central banks may respond as it propagates through inflation and activity (Part II), and consider whether and how a broader “Supply Accord” could eventually emerge if the disruption proves persistent (Part III).
From a central-bank perspective, the market reaction was immediate and revealing. Investors quickly pushed up the expected path of short-term rates, but not in the same way everywhere. In the UK, the shift was sharp enough to move market pricing away from easing and toward the possibility of renewed tightening. In the US, the move was more measured, but it still mattered: compared with the pre-conflict baseline, it effectively wiped out the cuts that had been priced in. Switzerland also saw expectations of easing pulled back. Japan was the outlier, with a much smaller move — a reminder that the BoJ was already on a normalisation path and that this shock hits Japan as both an inflation problem and a real-income squeeze.
The key question is whether this repricing is proportionate. For central banks, the analytical challenge is acute. This is a supply shock, so monetary policy cannot address the disruption at its source. Yet if the rise in energy prices persists, inflation expectations can still become unanchored. The memory of 2022 matters here: households and firms may now be quicker to incorporate higher energy costs into wage demands and price-setting behaviour than they would have been in an earlier cycle.
The four central banks covered in this edition came into this shock with very different vulnerabilities, and those differences shape both how the shock lands and how much room each has to respond.
The Federal Reserve entered with inflation still above target, a labour market that had moderated but remained resilient, and stronger growth momentum than the other three. As a net oil exporter, the United States is also less directly exposed than most advanced economies, giving the Fed more scope to wait and assess the persistence of the shock.
The Bank of England entered from a much more fragile position. Inflation was also above target, with weak growth, and the economy struggling to build momentum. The oil shock has complicated the policy outlook further: it narrows the scope for renewed easing while also raising the risk of additional demand compression in an economy with limited underlying strength.
Japan is structurally the most exposed of the four. Its heavy dependence on imported energy, combined with a yen that has again moved into politically sensitive territory, makes the shock particularly difficult to absorb. The Bank of Japan therefore faces an uncomfortable configuration in which the same shock pushes measured inflation higher through higher import prices while simultaneously squeezing real incomes and weighing on consumption.
The Swiss National Bank sits at the opposite corner. With the policy rate already at zero and the franc still playing a central role in macroeconomic adjustment, the SNB must judge whether an external energy shock is sufficient to alter what had previously been a broadly disinflationary environment. In Switzerland’s case, the issue is not overheating, but whether imported energy costs are strong enough to disturb what had otherwise become a fairly benign inflation backdrop.
All four central banks left policy unchanged at their March meetings, treating the moment as one that called for a tactical pause rather than an immediate reaction. But the differences in tone were informative. Those differences (in inflation, labour-market conditions, energy dependence, and how close each institution already is to the lower bound) will shape both how the shock propagates across economies and how quickly each central bank can return to its pre-conflict policy path.
Related Posts:
A Compounding Oil Shock: Preface
A Compounding Oil Shock: Part I (Why the Treasury Cannot Short a Physical Shortage)
A Compounding Oil Shock: Part II (The Fed Playbook: Reaction Function and Decision Grid)
A Compounding Oil Shock: Part III (The Supply Accord — A Policy Proposal)
Central Bank Commentary (February-2026): Federal Reserve, Bank of England and Bank of Japan.
Federal Reserve
Policy assessment
The March FOMC meeting showed that the Fed’s holding pattern is no longer just a domestic story. It is now being shaped by a geopolitical shock whose economic consequences remain highly uncertain. The Committee voted to maintain the target range for the federal funds rate at 3½ to 3¾ percent for the second consecutive meeting. The Summary of Economic Projections (SEP) revised both inflation and growth upward, and left the rate path unchanged — a combination that suggests the Fed is choosing, for now, to look through the near-term oil shock rather than treat it as a reason to change course.
Latest inflation report: US CPI-February 2026 Inflation Report
Policy background
Policy decision
The FOMC voted 11–1 to hold the target range at 3½ to 3¾ percent. The single dissent came from Governor Stephen Miran, who preferred to lower rates by 25 basis points at this meeting. Beyond Miran’s dissent, the hold commanded broad support across the Committee.
Powell framed the current stance directly: after cutting 75 basis points between September and December, the Committee judged it had brought policy “within a range of plausible estimates of neutral,” and that this level “should continue to help stabilize the labour market while allowing inflation to resume its downward trend toward 2 percent.” The formal statement explicitly named developments in the Middle East as a source of uncertainty for the US economic outlook and reaffirmed its attentiveness to risks on both sides of the dual mandate. That was a meaningful shift from January, when the statement’s risk language was still more balanced and mostly domestic.
Inflation assessment
Inflation remains elevated and the March SEP moved the end of 2026 forecast upward. Powell argued that inflation was still being pushed mainly by goods prices, with tariffs being the key driver. Services inflation continues to decelerate, and longer-term inflation expectations from both market- and survey-based measures remain consistent with the 2% goal. The near-term picture, however, has become problematic. Near-term measures of inflation expectations have risen sharply in recent weeks, which Powell attributed directly to the oil price surge from Middle East supply disruptions. He was careful to separate this from the structural disinflationary trend: “it is too soon to know the scope and duration of the potential effects on the economy.“
The SEP revision tells the story numerically. Median PCE inflation for 2026 moved from 2.4% in December to 2.7% in March, a meaningful upward shift concentrated in the current year. Core PCE followed the same trend, revised from 2.5% to 2.7% for 2026, before settling back toward 2.0% by 2028. More important, the 2027 and 2028 projections barely moved. That is the clearest sign that the Committee still sees the oil shock as a near-term disturbance rather than a change in the medium-term path. The distribution of participants’ views on inflation risks shifted decisively toward the upside for 2026, reinforcing the message that the near-term concern is real even if the Committee is choosing not to react to it directly.
Labour market/activity assessment
The labour market picture has softened with negative payroll print in February, although this was partly driven by temporary factors such as strike activity and weather. The unemployment rate stood at 4.4% in February and has been broadly stable since late summer — the SEP median holds it at 4.4% through end-2026, unchanged from December, edging down to 4.3% in 2027 and 4.2% in 2028. Job gains have remained subdued. Powell still framed much of the softening as a combination of demand and supply factors: labour force growth has slowed and hiring rate has softened too.
The activity outlook was revised modestly upward. Median real GDP growth for 2026 moved from 2.3% to 2.4%, and for 2027 it was revised up from 2.0% to 2.3%. Consumer spending has remained resilient; business fixed investment continues to expand, while housing activity stays weak. The Committee sees the current stance as appropriate to support both sides of the dual mandate while waiting to assess Middle East developments.
Risk assessment
The Committee characterized uncertainty as elevated and acknowledged explicitly that the implications of the Middle East conflict for the US economy remain unclear. The risk balance on inflation has shifted upward: participants’ uncertainty assessments on both PCE and core PCE are skewed “higher than historical” for 2026, and risks to the inflation path are weighted to the upside. On the oil shock specifically, the Committee’s SEP framing is that higher energy prices push headline inflation up in the near term with no substantial effects on GDP growth or unemployment. The uncertainty surrounding geopolitical development was captured well by Powell’s remark that “nobody knows” whether higher gas prices will persist. That is the policy reality, and it explains why the Committee neither tightened its forward guidance nor relaxed it.
Key themes
Looking through the shock, for now.
By leaving the 2026 median Fed funds rate dot at 3.4%, implying one cut remaining this year, the Committee is signalling it still expects energy prices to fade. Revising PCE up 30 basis points simultaneously is an acknowledgment that the near-term overshoot is real.
Rate hikes are back on the table
Powell acknowledged that the possibility of hiking rates was discussed at the press conference but not incorporated in the SEP projection. Even if it is not the baseline, the press conference made clear that hikes have re-entered the discussion as a contingency if the shock persists.
Policy reading
The March meeting confirms the Fed is in a disciplined holding pattern, neither capitulating to the pressure to cut nor overreacting to the oil shock by signalling hikes. The formal statement explicitly acknowledged Middle East uncertainty. Combined with the upward revision to inflation and the retention of one cut in the 2026 dot plot, the message was simple: the Fed sees the shock, takes it seriously, but is not yet willing to treat it as a reason to rewrite the medium-term policy path.
If the conflict proves short-lived and oil retreats in Q2, the July or September meetings become live again. If energy prices remain elevated into Q2, even the single cut projected for 2026 comes into question. The longer-run neutral rate was revised up marginally from 3.0% to 3.1%, a small but directionally significant signal that several participants have nudged their estimate of where rates ultimately settle.
Current baseline: hold again in May. First cut late in H2 2026 conditional on Middle East de-escalation and near-term inflation expectations receding. If energy prices stay elevated through Q2, rate cuts likely slip to early 2027. Labor market development can complicate policy outlook.
Bank of Japan (BoJ)
Policy assessment
The March meeting produced the same headline result as January: an 8-1 vote to hold the overnight call rate at around 0.75%, but the statement and press conference that accompanied it were meaningfully different in character. Where January’s decision was essentially a domestic story about wage-price dynamics and the durability of underlying inflation, March added the complication coming from the surge in crude oil prices triggered by the conflict in the Middle East. Governor Ueda’s press conference explanation for the hold was notably precise: the baseline scenario itself had not changed, but “the probability that it will be realized has declined somewhat” and “a new risk scenario associated with higher oil prices has emerged.” That framing signals a shift in probabilities rather than a fundamental reassessment, and it defines the logic of the holding decision.
Latest inflation data: Japan CPI — February 2026 Inflation Report
Policy background
Policy decision
The Policy Board voted 8-1 to maintain the guideline for money market operations, directing the overnight call rate to remain at around 0.75%. The single dissent was again Takata Hajime, who proposed raising the rate to around 1.0%. The evolution of Takata’s dissent between January and March is itself a signal worth reading carefully. In January, he argued that the price stability target had been “more or less achieved” and that overseas economies in a recovery phase meant upside risks to Japanese prices dominated. By March, his rationale had changed: he now cited specifically “second-round effects of price rises stemming from overseas developments” as the key driver, a direct reference to the oil shock feeding through import costs and, potentially, into domestic wages and prices.
A second layer of disagreement sat beneath the vote itself. Tamura Naoki voted with the majority on the rate decision but formally opposed the wording of the inflation outlook in the statement: Tamura’s view is that underlying inflation would reach target-consistent levels “from the beginning of fiscal 2026,” earlier than the majority’s placement of that convergence in the second half of the projection horizon.
Most revealing of all was Ueda’s account of the internal debate during the press conference. Asked directly whether upside inflation risk or downside growth risk commanded more weight at this meeting, he acknowledged that “the point was discussed quite intensively” and that “some members said upside inflation risk should be given more weight, while others emphasized downside risks to the economy.” His assessment: “my impression was that the number of those leaning toward the former was slightly larger.” This makes the 8–1 vote a less informative summary of the Board’s internal balance than it first appears.
Inflation assessment
The January 2026 Outlook Report set out a precise two-stage inflation path. The median forecast for CPI excluding fresh food was +2.7% for fiscal 2025, decelerating to +1.9% in fiscal 2026 before recovering to +2.0% in fiscal 2027. The deeper measure, CPI excluding both fresh food and energy, was projected at +3.0% for fiscal 2025, +2.2% for fiscal 2026, and +2.1% for fiscal 2027. Both measures reflect the same dynamic: the fading of food price effects (rice prices in particular) and the effect of government energy measures mechanically depress the numbers through the first half of fiscal 2026, before the strengthening wage-price cycle reasserts itself and pushes underlying inflation back toward 2% in the second half of the projection horizon.
The oil shock now introduces a third phase to this narrative. The March statement describes a path in which the mechanical deceleration below 2% is followed not by a smooth return to target but by renewed upward pressure from crude oil prices feeding through energy and import costs. Ueda acknowledged this creates genuine ambiguity about the direction of underlying inflation: higher oil prices raise energy prices directly and, through higher household and firm inflation expectations, could push up underlying inflation; but if the deterioration in Japan’s terms of trade weakens the economy sufficiently, the output gap could worsen and pull underlying inflation downward. “I think it could move in either direction,” he said in the press conference.
Activity and labour market assessment
The January Outlook revised real GDP growth upward for both FY2025 (to a median of +0.9% from +0.7% in October) and FY2026 (to +1.0% from +0.7%), primarily reflecting government economic measures and better overseas demand, before pulling back to +0.8% in FY2027 as those one-off supports dissipate. The March statement’s characterisation of the economy is consistent with this baseline: recovery is moderate, exports and industrial production remain broadly flat, and private consumption has remained relatively resilient despite the continuing drag on real incomes from higher prices.
The labour market remains the linchpin of the normalisation story. The January Outlook projected labour market conditions tightening further as economic improvement continues. Against this backdrop, the Bank anticipated that a wide range of firms would continue to raise wages steadily in the 2026 spring negotiations. Ueda identified the spread of wage increases to small and medium-sized enterprises as the critical question: “a major point going forward will be how far wage increases spread to small and medium-sized firms.”
Risk assessment
The March statement’s risk section is more populated than January’s, leading explicitly with “the future course of the situation in the Middle East as well as developments in crude oil prices” — new language placed deliberately at the front of the risk catalogue. The sequencing signals that the Board views geopolitical and commodity price developments as the most immediate and uncertain variable currently facing Japan’s outlook.
The oil shock creates an asymmetric risk profile for Japan that differs from the other central banks in this commentary. For the BoJ, still operating with significantly negative real interest rates, the same shock could either pull forward or push back the next rate hike depending entirely on which channel dominates: if second-round effects strengthen inflation expectations and wage-setting, the case for a sooner hike strengthens; if the terms-of-trade deterioration weakens the economy and the output gap widens, the case for patience is reinforced. Ueda drew an explicit lesson from this when reflecting on historical oil shock episodes — the key variable is always whether medium- to long-term inflation expectations remain anchored. At present, he assesses them as rising moderately, which is why the Board has not concluded that the shock argues against the normalisation path. Ueda was also candid about a structural factor that makes this episode different from past supply shocks, including the post-Ukraine experience: because firms have become significantly more active in wage- and price-setting behaviour in recent years, the pass-through from import prices to domestic prices — and from there to underlying CPI — “may now be stronger than in the past.” This heightened sensitivity applies to exchange-rate movements as well as commodity prices, and it means the Board cannot simply look through the oil shock as it might have done five years ago.
Key themes
Exchange-rate and oil-price pass-through appears structurally stronger than in the past.
It means the BoJ cannot apply the standard central-bank playbook of looking through supply shocks automatically — the second-round effects are likely faster and larger than historical experience would suggest. That makes communication of underlying inflation both more important and more difficult, which is why the expanded CPI indicators announcement was not a side note but a central piece of the press conference.
Spring wages and the April Outlook are the two watches.
SME wage spread data and branch office hearings will be the near-term inputs; the April Outlook is where the Board will formally reassess the central scenario, risk balance, and potentially reconsider the policy stance. Ueda confirmed explicitly that even without a change to the central scenario, “if we judge the risks to be sufficiently important, it is not impossible that, from a risk-management perspective, policy could place greater weight on the risks themselves.”
Policy reading
The March meeting confirms that the Bank of Japan is holding its normalisation course with deliberate patience, absorbing the Middle East shock as a new variable rather than allowing it to either accelerate or derail the rate path. The 8-1 vote, the retention of the January Outlook as the operative baseline, and the explicit conditioning of future hikes on that baseline being realized all point to a central bank in no hurry but with no loss of direction. The April Outlook Report will be the first opportunity to formally revise projections, reassess the risk balance with additional data on wages and oil prices, and, if the Board judges it appropriate, move on rates.
Current baseline: the BoJ still looks likely to hold in April, but the meeting is more live than it first appears. If the April Outlook keeps the inflation story intact and second-round effects from energy begin to build, a 25bp move to 1.0% cannot be ruled out.
Swiss National Bank (SNB)
Policy assessment
The March monetary policy assessment delivered the expected outcome — the SNB policy rate held at 0% — but the framing was more interesting. The same geopolitical shock pushing inflation higher at every other central bank in this commentary is doing something more structurally distinctive in Switzerland: it is raising near-term energy prices while simultaneously driving safe-haven flows into the Swiss franc that tighten monetary conditions and suppress the medium-term inflation path. The two effects partially offset each other, producing a conditional forecast that is higher than December in the short term and slightly lower in the medium term. That is why the most important signal from this meeting was not the policy rate, but the SNB’s language on foreign-exchange intervention.
Latest inflation data: Switzerland CPI — February 2026
Policy background
Policy decision
The Governing Board decided unanimously to leave the SNB policy rate unchanged at 0%. The operative signal of this meeting appeared in the first line of both the press release and Schlegel’s opening remarks: “Given the conflict in the Middle East, our willingness to intervene in the foreign exchange market has increased.” That wording is stronger than the SNB’s usual formulation and suggests a bank on active watch, not just standing by. Pressed in the Q&A on what exactly was new about the “increased” willingness, Schlegel declined to be drawn further, simply repeating the formulation and adding that the SNB “is prepared to be active in the market if necessary.”
Inflation assessment
CPI rose 0.1% year-on-year in February 2026, unchanged from January, placing it at the very bottom of the SNB’s 0–2% price stability range. The March conditional inflation forecast revises this trajectory in two different directions depending on the horizon. In the near term, the oil shock pushes the path meaningfully higher: Q2 2026 is now projected at 0.5%, up from 0.2% in the December forecast, and Q3 and Q4 2026 both at 0.6%, up from 0.3% and 0.5% respectively. In the medium term, however, franc appreciation, itself a product of safe-haven flows from the same conflict, reduces imported inflation and dampens the later part of the path. The annual averages that result are 0.5% for 2026 (up from 0.3% in December), 0.5% for 2027 (down from 0.6%), and 0.6% for 2028. The entire horizon remains within the price stability band. On the uncertainty around the forecast itself, Schlegel was explicit in the press conference: current uncertainty is “significantly elevated, mainly because much depends on how quickly energy prices return to lower levels.”
Activity and external environment
Switzerland’s economic recovery from the Q3 2025 contraction has been uneven. GDP grew again in Q4 2025, with the rebound driven primarily by the pharmaceuticals sector, whose value added had fallen sharply in Q3 following the unwinding of front-loaded exports to the US in anticipation of tariffs. Services continued to expand. The unemployment rate in February was unchanged from the December assessment, suggesting labour market conditions have stabilised rather than deteriorated further. The SNB projects growth of around 1% for 2026 as a whole — consistent with the December forecast — followed by a pickup to around 1.5% in 2027 as one-off pharmaceutical distortions fade. The Middle East conflict introduces headwinds: higher energy prices will weigh on Swiss consumers’ purchasing power, and franc appreciation dampens export competitiveness.
Risk assessment
The risk section of the March assessment is dominated by the Middle East. The SNB identifies developments in the Middle East specifically as the main risk to the economic outlook for Switzerland. The downside scenarios were articulated clearly in both the official communication and the press conference: energy prices rising more strongly than the baseline assumes would “considerably increase inflation and substantially constrain economic growth”; supply chain disruptions could add further headwinds; and elevated uncertainty could suppress consumer and business sentiment well beyond what the energy price impact alone would imply.
The most revealing exchange in the press conference came when Schlegel was asked to rank the two competing risks: higher inflation from energy prices versus lower inflation from safe-haven franc appreciation. His answer interpreted the two forces as two faces of the same shock. On negative interest rates, Schlegel acknowledged that the probability of reintroducing them “has increased somewhat,” while emphasising that this is not the base case and that their transmission poses “significant challenges for many economic agents.” The instrument remains available, but the bar for using it is higher than it was in 2015.
Key themes
Intervention willingness is now explicitly heightened.
The language shift from readiness to intervene if necessary to “willingness to intervene has increased” is deliberate and calibrated. It signals to markets that the SNB is not waiting for franc strength to become extreme before acting.
Negative rates are back on the table.
Schlegel’s acknowledgment that the probability of reintroducing negative rates has “increased somewhat” is the first time this language has appeared since the SNB moved away from sub-zero policy. It is not a signal that negative rates are imminent, but it does mean the SNB no longer wants markets to assume they are off the table.
Policy reading
The March assessment confirms that the SNB is operating with a clearly defined hierarchy of tools: the policy rate, at zero and at the lower boundary of conventional monetary space, stays unchanged; and the exchange rate, via active intervention if needed, becomes the primary instrument for managing monetary conditions. The decision to upgrade intervention language rather than reach for negative rates reflects both the SNB’s explicit view that the bar for sub-zero rates is higher than it was in 2015 and its confidence that FX intervention provides a more targeted and proportionate response to safe-haven pressure driven by external shocks. The medium-term inflation path, forecast to remain within the 0–2% price stability range throughout the horizon, gives the SNB room to wait. If the Middle East conflict escalates materially and oil prices surge well beyond baseline, the near-term inflation uplift would intensify, but franc appreciation would likely accelerate simultaneously, compressing the medium-term path further.
Current baseline: hold at 0% at the June 2026 meeting. FX intervention the primary active tool, with willingness explicitly upgraded.
Bank of England (BoE)
Policy assessment
The March MPC meeting delivered a unanimous 9–0 vote to hold Bank Rate at 3.75%, a decision that was effectively shaped by a single external development: the outbreak of the Middle East conflict. Prior to that shock, the domestic disinflation process had been proceeding broadly as expected, and several members had been inclined to vote for a cut. The conflict changed the calculus entirely. With global energy prices surging in response to the near halt of shipping through the Strait of Hormuz, the Committee judged that it needed more time to assess the scale and duration of the shock, and crucially, whether it would trigger second-round effects in wage and price-setting that could embed inflation more persistently. The unanimous vote hides a wide spread of views: some members still see this as a pause in an easing cycle, while at least one has shifted toward a longer hold and would not rule out a hike if inflation persistence returns.
Latest inflation report: UK CPI — February 2026
Policy background
Policy decision
The MPC voted unanimously to keep Bank Rate at 3.75%, but the unanimity was more a consequence of the shock than a sign of deep agreement. Sarah Breeden and Dave Ramsden both indicated that, absent the Middle East conflict, they would likely have supported a 25bp cut. Alan Taylor cautioned against reading too much into a single meeting. Catherine Mann, by contrast, sounded firmer, stressing that renewed persistence could justify a longer hold and, in extremis, even reopen the door to hikes. The underlying picture is a Committee that has been pushed into a wait-and-see stance by an external energy shock.
Inflation assessment
Twelve-month CPI inflation remained at 3.0% in February, unchanged from January, while services inflation eased to 4.3% year on-year from 4.4% in January, suggesting that domestic price pressures remained somewhat persistent. Prior to the conflict, the Committee had expected inflation to fall back close to the 2% target from April, partly supported by measures in the 2025 Budget. That path has now been disrupted. The increase in Brent crude along with much higher wholesale gas prices has led Bank staff to project CPI at around 3.5% in March, and to remain between 3% and 3.5% over the next couple of quarters. If wholesale gas conditions persist, the July Ofgem price cap is likely to be materially higher, adding further direct upward pressure in the second half of the year. What the Committee most fears is a second-round process: households and firms treating higher energy prices as lasting, and building them into wages and prices in a way that starts to feed on itself.
Labour market/activity assessment
Prior to the shock, the labour market had been loosening in a broadly orderly fashion. The LFS unemployment rate held at 5.2% in the three months to January, unchanged from December and in line with the February Report forecast. Employment growth remained subdued, and the vacancies-to-unemployment ratio stayed below its estimated equilibrium, consistent with a gradual easing of labour market tightness. Annual growth in private sector regular Average Weekly Earnings came in at 3.3% in the three months to January — actually below the February forecast, a modestly encouraging signal before the conflict complicated the picture. The Bank’s Agents have since revised their estimate of average private sector pay settlements for 2026 to 3.6%, 0.2 percentage points higher than the pre-conflict estimate. On activity, UK GDP expanded by just 0.1% in the fourth quarter of 2025, slightly below the 0.2% projected in the February Report, while monthly GDP was flat in January. Underlying quarterly growth in the first quarter of 2026 is estimated at 0.1%–0.2%. The economy is therefore entering the energy shock from a position of below-potential growth, operating with a margin of spare capacity, a feature that could constrain second-round effects relative to the 2022 episode, but that also leaves households more exposed to any squeeze in real incomes.
Risk assessment
Risks around the medium-term inflation outlook have shifted materially to the upside since February, though meaningful downside risks to activity are present alongside them. On inflation, the Committee is alert to the risk that energy and food price increases, which are particularly salient for households’ inflation expectations, reignite wage and price-setting behaviour of the kind that proved persistent following earlier supply shocks. Several members, including Megan Greene and Huw Pill, highlighted that inflation has been above target for the best part of five years, making households and businesses potentially more reactive to any new inflationary impulse. On the activity side, higher household fuel and utilities costs will squeeze real incomes, confidence could deteriorate, and precautionary saving may rise, all of which could weigh on demand and push unemployment higher more quickly than anticipated. The Committee noted that this dynamic could itself help contain second-round effects, but the net balance of risks is not yet clear. The duration of the conflict, and whether energy supply disruptions extend and deepen, is the dominant source of uncertainty. The MPC was explicit that it expected to have meaningfully more information on the scale of the shock by its April meeting.
Key themes
A unanimous hold that hides a fractured committee.
The 9–0 vote reflects a shared judgment to wait for more information, not a shared view on direction. Several members were ready to cut; at least one is now considering the possibility of a hike. April will reveal the true shape of the Committee’s reaction function.
The conflict has delayed, not necessarily derailed, disinflation.
Underlying domestic inflation pressures were easing before the shock. The key question now is whether higher energy prices produce a one-off level effect that fades, as the MPC managed in 2011, or whether second-round dynamics embed a more persistent inflationary impulse. The answer depends heavily on how long the conflict lasts.
Energy pass-through and wage-setting are the variables to watch.
With private-sector pay settlements already running at 3.6% and inflation expectations still fragile, the MPC is watching closely for signs that higher energy prices feed into wage demands, firms’ own-price expectations, or the broader price-setting environment.
Policy reading
The March meeting confirms that the Bank of England’s easing cycle has been interrupted by an exogenous supply shock of uncertain but potentially significant magnitude. The unanimity of the hold decision should not be mistaken for consensus on the direction of travel: the Committee is genuinely split between those who view this as a temporary pause before resuming cuts and those who believe the inflation risk has shifted the balance firmly toward a longer hold or tighter stance. What is clear is that the April meeting will be the pivotal one. By then, the Committee expects to have considerably more information on the duration of the conflict, its impact on energy supply, and early evidence of how wage and price expectations are responding. The range of outcomes from that meeting — cut, hold, or a hawkish tilt — is wider now than at any point in this easing cycle.
Current baseline: April is a live meeting. Everything depends on the evolution of the conflict, the path of energy prices, and early signs of second-round effects in wages and prices. If energy prices remain high and second-round effects begin to appear, the discussion could shift from delayed easing to the more uncomfortable question of whether hikes need to be reconsidered.
The BoE section is the one that matters most right now. A committee split between members who were ready to cut and at least one considering hikes is not a 9-0 vote: it is nine separate reactions to the same shock.
The April meeting is genuinely live in a way that markets haven't priced. The second-round effects question is the right one: with private sector settlements already at 3.6% and inflation above target for five years, the anchoring assumption looks fragile. The gilt market got there first.