Trapped in the energy storm and the shadow of recession, the Bank of England is expected to "stay put" and enter a wait-and-see mode tonight.

Due to the tense standoff between the US and Iran, policymakers at the Bank of England are inclined to wait and see, and are highly likely to maintain the benchmark interest rate this Thursday. Market and economic analysts generally expect the Monetary Policy Committee to keep the benchmark rate at its current level of 3.75%, with traders placing only a 10% chance of a rate hike. The interest rate decision will be announced at 19:00 Beijing time, and Bank Governor Andrew Bailey will hold a press conference half an hour later. The current policy dilemma faces a trade-off: on one hand, the US-Iran conflict may lead to long-term volatility in energy prices; on the other hand, the overall trend of the UK economy is weak, and policy adjustments need to consider dual risks. Although a weak labor market may help prevent the formation of a vicious cycle of prices - which plagued the Bank of England after the Russia-Ukraine conflict in 2022 - Chief Economist Huw Pill is expected to vote in favor of a rate hike due to concerns about secondary inflationary effects. Meanwhile, the Monetary Policy Committee may continue to keep the relevant wording, warning that they are "ready to act at any time" to contain any threats posed by persistent high inflation. Voting disparities emerge At the interest rate meeting in March this year, all members of the Monetary Policy Committee unanimously agreed to keep the rate unchanged. However, market forecasts suggest that someone among the nine members may break ranks and vote in favor of a rate hike. A survey of 32 economists showed that about two-thirds of respondents expect a split vote this time, with the most common prediction being an 8:1 vote result. Pill is seen as the most likely to call for immediate action, as he had recently warned against adopting a "wait-and-see" strategy. Deputy Governor Clare Lombardelli and external members Megan Greene and Catherine Mann have all previously held hawkish positions and may also shift their support towards a rate hike due to geopolitical tensions. Policy guidance tweaked The Bank of England aims to avoid a repeat of the market turmoil seen after the March meeting - when UK government bond yields and rate hike expectations soared. The significant market turbulence prompted Bailey to intervene, emphasizing that officials are not eager to address the increasing price pressures. However, with the ongoing standoff between the US and Iran in the Hormuz Strait and long-term supply pressure on energy, the money markets have already priced in three rate hikes this year, with the first expected as early as June. Oil prices had previously risen above $119 per barrel, and benchmark natural gas future prices also surged. The Monetary Policy Committee is likely to continue with the policy guidance released in March, maintaining a stance of being prepared to hike rates when necessary. The individual views of the committee members in the minutes will likely provide clearer policy signals. The bank may also use multiple inflation scenario assumptions in the Monetary Policy Report to indicate the proximity of rate hike measures. Elizabeth Martins, UK economist at HSBC, said: "Given that the March interest rate stance exceeded market expectations, the Monetary Policy Committee may appropriately soften its hawkish stance in its language." Economic forecasts rewritten comprehensively The Bank of England's February economic forecasts had predicted moderate growth and a return of inflation to around 2% by spring this year. However, the latest forecasts may completely rewrite this outlook. The UK economy is highly sensitive to fluctuations in oil and gas prices. Despite positive pre-conflict GDP data, the latest forecasts may highlight a significant increase in the risk of the economy entering a technical recession. Most economists expect the UK's economic growth forecasts for the next two years to be downgraded, with the data suggesting that inflation levels for the whole of 2026 will be significantly above the central bank's 2% target. Multiple scenarios become focus of communication Due to the high uncertainty about the end of the Iran conflict, multiple scenario analyses will be a key tool for the Bank of England's policy communication. The bank may simulate the impact of energy price fluctuations under different scenarios, as well as the effects of secondary inflationary effects, and indicate the base-case scenario to provide markets with a potential policy response to geopolitical conflicts. Analysts Dan Hanson and Matthew Bunny said: "The Bank of England may focus on scenario analysis to assess the duration of energy price shocks, the intensity of their effects, and the corresponding monetary policy response paths. Most policymakers are concerned that a rate hike amid weak domestic demand could further weigh on the economy."