ECB holds rates as expected amid Iran conflict uncertainty

19th Mar 2026 13:26

(Sharecast News) - The European Central Bank left interest rates on hold at 2% on Thursday, as widely expected, as it said the war in the Middle East has made the outlook "significantly" more uncertain.

The Bank said the conflict has created upside risks for inflation and downside risks for economic growth.

"It will have a material impact on near-term inflation through higher energy prices. Its medium-term implications will depend both on the intensity and duration of the conflict and on how energy prices affect consumer prices and the economy," the ECB said in a statement.

The central bank lifted its forecasts for inflation, while downgrading its projections for economic growth.

The ECB now expects headline inflation to average 2.6% in 2026, 2.0% in 2027 and 2.1% in 2028, down from a forecast of 1.9%, 1.8% and 2.0%, respectively, in December. It cited rising energy prices due to the war in the Middle East.

Meanwhile, economic growth is expected to average 0.9% in 2026, 1.3% in 2027 and 1.4% in 2028, down from a December projection for growth of 1.2% in 2026 and 1.4% in 2027. This reflects the global effects of the war on commodity markets, real incomes and confidence, it said.

Earlier on Thursday, the Bank of England kept rates on hold as soaring energy prices continued to climb in response to war in the Middle East.

The rate-setting Monetary Policy Committee voted unanimously to leave the cost of borrowing at 3.75%, and said it "stands ready" to tackle any spike in inflation.

Up until the US attacked Iran at the start of the month, leading to the outbreak of widespread hostilities across the region, most analysts had been expecting rates to be trimmed at the March meeting. But the ensuing surge in energy prices - benchmark Brent crude is currently trading above $110 a barrel - has reignited inflation fears.

The MPC said it now expected the consumer price index to be higher in the near term "as a result of the new shock to the economy", with inflation reaching close to 3.5% in March. That is almost half a percentage higher than forecast in February.