Finance
Impact of Middle East conflict uncertain, Bank of England's Taylor says
Published by Global Banking & Finance Review®
Posted on March 2, 2026
3 min readLast updated: March 2, 2026
Quick Summary
Bank of England’s Alan Taylor cautions that it’s too early to gauge the economic impact of the Middle East conflict on Britain, as surging oil prices and shifting markets cloud the outlook and reduce expectations for near‑term rate cuts.
Bank of England Uncertain on Economic Impact of Middle East Conflict, Taylor Says
Bank of England's Response to Middle East Conflict
By Gwladys Fouche and Yoruk Bahceli
Immediate Economic Concerns
OSLO, March 2 (Reuters) - Bank of England policymaker Alan Taylor said on Monday that it was too soon to tell how the conflict in the Middle East would impact Britain's sluggish economy.
Escalation of Conflict and Oil Prices
The U.S.-Israeli war against Iran, which killed the Supreme Leader, Ayatollah Ali Khamenei, over the weekend expanded on Monday as Iran retaliated and Israel attacked Lebanon. Oil prices surged as much as 13% on Monday, threatening to push up inflation if higher energy costs persist.
Inflation and Growth Outlook
Asked how higher energy costs would impact inflation and growth, Taylor told a conference hosted by Norway's central bank: "I think it's really too soon to tell".
"That's something we're going to have to keep an eye on as the situation evolves in real time … the outlook is very fluid."
Market Reactions and Policy Implications
Financial markets on Monday curbed their bets on rate cuts across central banks, reassessing the risk of energy-driven inflation as several Gulf countries shut some of their capacity.
Interest Rate Expectations
Traders now see less than a 50% chance of a BoE rate cut in March, compared to nearly 80% before markets opened on Monday.
For the whole year, they no longer fully price in two rate cuts.
Risks and Policy Perspectives
Earlier in the speech, Taylor reiterated his view that Britain's economy faced growing downside risks and the central bank might soon have to manage a situation where the usual trade-offs between a slowing economy and inflationary pressures no longer apply.
Deficient Demand Concerns
"I judge that we will soon find ourselves largely outside of trade-off territory – and even at risk of entering the familiar realm of deficient demand," Taylor said.
Monetary Policy Committee Dynamics
Taylor was part of a four-strong minority on the BoE's Monetary Policy Committee which sought to cut benchmark interest rates to 3.5% from 3.75% last month.
Inflation Target and U.S. Tariffs
He said at the time he saw a risk of inflation persistently undershooting the BoE's 2% target in the future.
He also reiterated his view that U.S. tariffs would be a source of disinflation for Britain as goods that can't get into the United States may get diverted into the country.
(Reporting by Gwladys Fouche and Yoruk Bahceli; additional reporting by Suban Abdulla, editing by Andrei Khalip)
Key Takeaways
- •Oil prices surged by up to 13% as the US‑Israel conflict killed Iran’s Supreme Leader and disrupted the Strait of Hormuz, raising inflation risks. (livemint.com)
- •Markets slashed odds of a March BoE rate cut to below 50%, amid heightened energy uncertainty. (theguardian.com)
- •Taylor warned that Britain’s economy may soon fall outside the usual growth‑inflation trade‑off, risking deficient demand even as energy costs rise. (chathamfinancial.com)
References
Frequently Asked Questions about Impact of Middle East conflict uncertain, Bank of England's Taylor says
1How might the Middle East conflict affect the UK's economy?
Bank of England's Alan Taylor states it is too soon to determine the full impact, especially given the fluid situation affecting oil prices and inflation.
2Will the Bank of England cut interest rates soon?
Financial markets now see less than a 50% chance of a rate cut in March, as energy-driven inflation risks are reassessed.
3Why are oil prices rising and what does it mean for inflation?
Oil prices surged up to 13% due to expanding conflict, which could push up inflation if high energy costs persist.
4What is the Bank of England's current view on inflation and demand?
Taylor warns that Britain may soon move outside trade-off territory, risking deficient demand and possible inflation undershooting targets.
5How could US tariffs affect UK inflation?
Taylor suggests that US tariffs might divert goods to the UK, serving as a source of disinflation.
