The Bank of England has kept UK interest rates at 3.75%, with the Middle East conflict seen as the main obstacle to a cut. Policymakers believe domestic inflationary pressures are largely subdued, but fear prolonged higher oil and transport costs could rekindle inflation and prompt businesses and workers to raise prices and wage demands.

Consumer price inflation fell to 2.6% in June, while private-sector pay growth was 2.8% in the second quarter and is expected to reach 3% in the third. Most Monetary Policy Committee members focused on weakening employment conditions, falling vacancies and higher market borrowing costs, whereas three members favoured a rate rise; the Bank forecasts inflation peaking at 3.2% next spring, potentially 4.1% if the conflict continues.