26 March 2026: Greene says she was not close to voting to raise rates this month

The UK Consumer Prices Index (CPI) increased by 3% in the 12 months to February 2026, remaining unchanged from January, as economists warn of a potential energy price surge amid conflict in the Middle East.

Month on month, CPI increased by 0.4% in February this year, the same rate as in February 2025, according to data from the Office for National Statistics released yesterday.

Clothing made the largest upward contribution to the monthly change in CPI, while motor fuel made the largest downward contribution.

Meanwhile, core CPI, which excludes energy, food, alcohol, and tobacco prices, rose to 3.2% in the 12 months to February 2026, up from 3.1% in January.

The data was outdated even before its release, given the upheaval over the past month, with energy prices soaring after the joint U.S./Israeli attack on Iran, which has closed the Strait of Hormuz.

Rachel Reeves should consider capping energy costs for businesses already struggling with bills and tax hikes so they can survive the war in Iran, a senior business leader has said.

Shevaun Haviland, director of the British Chambers of Commerce, told reporters that the Chancellor should also consider reducing levies on companies’ bills and speed up a scheme to support energy-intensive manufacturing firms. Haviland added her voice to the growing pressure on Energy Secretary Ed Miliband to lift his ban on new oil and gas drilling licences in the North Sea to boost energy supplies and cut costs.

She spoke after Reeves promised to “keep costs down for everyone” and “provide support for those who need it most” if the Middle East conflict continues to push prices higher.

Meanwhile, another Cabinet Minister told The Financial Times that active discussions are underway within the Government on supporting businesses facing higher energy costs, with Industry Minister Chris McDonald believed to have identified some possible interventions. “It’s a very lively debate at the moment, and conversations are happening,” the Cabinet minister said. “It’s just about McDonald having to win those arguments in Whitehall and making sure the Secretaries of State see the opportunities for this as well.”

Bank of England policymaker Megan Greene stated yesterday that she was not close to voting for a rate hike at last week's interest rate-setting meeting, which was primarily influenced by the economic impact of the Middle East conflict.

"I wasn't tempted to vote for a hike," Greene, one of the more hawkish members among the BoE's nine rate-setters, said during an event organised by a U.S. investment bank.

Last week, the Monetary Policy Committee unanimously decided to keep rates unchanged. It said it was "ready to act" to ensure inflation remains on track for its 2% target as the economy feels the effects of the U.S./Israeli conflict with Iran. Although some MPC members indicated that a rate hike might be necessary, Greene remarked after the meeting that the risk of persistent inflation had risen, "perhaps significantly," and that British households might be more sensitive to inflation shocks.

Earlier this week, a survey published by Citibank revealed that inflation expectations among the British public for the coming year surged by the most in over 20 years from one month to the next, rising to 5.4% in March from 3.3% in February.

Sterling lost ground as risk appetite waned following Iran’s denial that it was in talks with the U.S. over the end of the conflict. It fell to a low of 1.3358 and closed at 1.3365.

The war of words over the replacement of Jerome Powell as Chairman of the Federal Reserve continues, as reports yesterday indicated that the Department of Justice has found no evidence of criminal activity by Powell or any of his colleagues.

An assistant U.S. Attorney acknowledged to a Federal Judge that the Justice Department had no criminal evidence.

Federal prosecutors sought a subpoena from a grand jury to probe Powell’s statements to the Senate Banking Committee about a $2.5 billion renovation of the Fed’s headquarters.

President Trump, who is pressuring Powell to lower interest rates, has suggested there was criminality linked to the project. The original estimate for renovating the headquarters was $1.9 billion, according to a 2022 report. “So what false statements did (Powell) make before Congress?” the Judge asked Massucco.

“Well, we don’t know" is my first answer. However, there are certain areas that he addressed that caused concern,” Massucco said.

Judge Boasberg then asked about the DOJ’s evidence of fraud or criminal misconduct.

“Again, we do not know at this time. However, there are 1.2 billion reasons for us to look into it,” Assistant U.S. Attorney Massucco said.

The U.S. attorney’s office alleged there were “possible discrepancies” in the projected cost in previous court filings. Still, it did not specify what those concerns were, according to The Washington Post, which first reported on the matter.

The Fed’s attorneys cited previous government-led renovation projects in which final costs were double their initial projections.

Meanwhile, Wall Street is lowering its forecasts for the US economy this year, increasing its projections for inflation and unemployment, and raising the likelihood of a recession as the effects of the war in Iran begin to become apparent.

Goldman Sachs says the risk of a downturn over the next 12 months has risen to 30% due to the surge in oil prices, and predicts the jobless rate will climb to 4.6% by the end of 2026, up from 4.4% in February.

Several firms say inflation will now be closer to 3% this year than 2%, eating into disposable incomes and keeping a lid on hiring.

That’s a shift from what was expected to be a strong year in 2026, as the shock from President Donald Trump’s tariffs fades into the background and stimulus from tax cuts takes effect.

Even if the fighting ends soon, economists say the damage already done will keep the US economy fragile, with job seekers and lower-income consumers continuing to struggle as the K-shaped economy persists.

“Many elements of the economy are going to be weaker because of this war,” said Nancy Vanden Houten, the lead US economist at Oxford Economics.

“The impact is very visible very quickly,” Vanden Houten said. “You just have to drive by your local petrol station.”

Stephen Miran, Trump’s “Man at the Fed”, told reporters yesterday that Monetary Policy is currently restraining the economy, and that’s not where interest rates should be.

The 3.5% to 3.75% federal funds rate now in place is about a percentage point too high and is “modestly restrictive and it is holding the economy back, and I don’t think that’s consistent with the macroeconomic backdrop,” Miran said at the 2026 Digital Asset Summit in New York.

He also said he’s not seeing any evidence that the current energy price shock is pushing up inflation expectations, which gives him confidence that actual price pressures won’t increase. Miran obviously has a driver, since he is going around with his eyes closed, as signs of price increases are all around.

The dollar index marginally benefited from the lowering of risk appetite, as the likelihood returned that the U.S. will make good on its warning to “obliterate” Iran's power networks as the Regime there said it is not engaged in peace talks.

The index rose to a high of 99.67 and closed at 99.64.

Christine Lagarde, President of the European Central Bank, indicated yesterday that interest rates could be raised even if an anticipated surge in inflation proves temporary. Her remarks reflect growing concern within the Central Bank after it revised its inflation outlook upward, now expecting prices to exceed its 2% target in the near term.

Speaking at the “The ECB and Its Watchers” conference in Frankfurt, Lagarde explained that even a short-lived but significant overshoot in inflation could justify a measured policy response. She cautioned that failing to react at all could undermine public confidence in the ECB’s commitment to price stability. However, she stopped short of outlining specific conditions or a timeline for any rate increase.

The Eurozone had only recently seen inflation dip below the ECB’s target before rising again to 1.9% in February.

The ECB’s stance on inflation is clearly shown by the fact that members of its Governing Council were relaxed about the possibility of rate cuts when they believed that inflation might fall short of the target by as much as 0.5% earlier in the year.

Escalating geopolitical tensions, particularly the conflict involving Iran and the near-total disruption of the Strait of Hormuz, have sharply driven up global oil and gas prices, complicating the inflation outlook across Europe.

In its latest projections, released after holding its key deposit rate at 2% last week, the ECB said it now expects headline inflation to average 2.6% in 2026, before easing to 2% in 2027 and 2.1% in 2028 under its baseline scenario. More pessimistic forecasts suggest inflation could climb as high as 4% this year, or even exceed 6% in early 2027 if energy market disruptions worsen significantly.

Lagarde emphasised that any sustained deviation from the ECB’s inflation target would require a proportionate policy response, potentially involving more forceful or prolonged tightening measures.

Meanwhile, the ECB’s Chief Economist, Philip Lane, highlighted that officials are closely monitoring corporate pricing behaviour and wage trends, particularly for new hires, as key indicators of underlying inflation pressures.

Lane went on to say that the Bank will continue to discuss economic scenarios at each meeting. The former Governor of the Bank of Ireland, an outsider to replace Lagarde when her term as President ends, noted that the decline in consumer confidence was evident and emphasised that this factor is an important indicator of near-term economic trends and their influence on the ECB's decisions.

He added that the purchasing managers' index shows a significant decrease in economic activity, highlighting the challenges the ECB faces in accurately assessing the economic situation. He explained that inflation expectations have a substantial impact in the first year, then diminish, which means the bank must constantly monitor data to maintain price stability and effective monetary policy.

Lane also noted that the wage tracking index is a good leading indicator for negotiated wages, helping the ECB anticipate potential pressures on the labour market and their impact on inflation. He clarified that these indicators will assist the Bank in making informed decisions regarding interest rates and other monetary policies, while balancing economic stability and sustainable growth.

His statements reflect the ECB's commitment to using all available tools to monitor markets and assess risks, ensuring the Bank's ability to face any sudden fluctuations. This comes in the context of the ECB's interest in maintaining price stability and enhancing confidence in monetary policies in the long term.

Even as markets become comfortable that the next move in rates will be a hike, the Euro is still struggling to cope with the likely rise in inflation and the likely downturn in economic activity.

Yesterday, the common currency fell to a low of 1.1553 and closed at 1.1558.

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