BoE tries to manage expectations as rate rise looms amid oil-price shock

Bailey highlighted that inflation hurts households, especially those with lower incomes, and reaffirmed the Bank's responsibility to chart a careful course through the energy and food price shocks.

There are some signs of the economy showing resilience in the first quarter. The Bank cautioned that households and businesses should be prepared for a Gulf disruption lasting several months and plan accordingly.

Bailey argued that the strength of sterling does not indicate a UK-specific problem; the exchange rate has remained around the upper end of its post-Brexit band, suggesting the issue is driven by the broader conflict rather than UK-specific factors.

The Bank said fixed-term mortgage rates are rising, with an average increase of about £80 per month. Just over half of mortgaged households are expected to roll off fixed-rate deals and face higher monthly payments over the next three years.

Markets were already pricing in a rate rise in June or July, based on the expectation that Gulf-related blockades could persist. Meanwhile, longer-term rates were rising ahead of any official BoE action.

Bailey noted that oil prices moved by about $10 per barrel from mid-morning to mid-afternoon, highlighting the sensitivity of outcomes to energy price changes and the potential influence on the policy outlook.

Bank of England Governor Andrew Bailey described the energy price surge as a very large shock affecting households, especially the least well off, and said the Bank must be sensitive to the inflationary impact on energy and food costs while charting the policy path.

The BoE minutes note that the Gulf crisis could last several months, and the Bank wants to map plausible outcomes—'ifs' and 'maybes'—to help households and firms plan in a prolonged disruption scenario.

In its latest meeting, the Bank of England signaled that no rate cut is expected soon and that some form of rate rise is more likely than not. If oil prices stay around $125 per barrel through the year, officials suggested rates could move above 5%. The minutes and new numbers stressed that the broader economic and geopolitical environment remains beyond the Bank's control.