The Bank of England’s MCP unanimous vote hid a deeper fight over inflation

The Bank of England’s March hold was not a settled consensus. It was a forced pause after an energy shock hit a committee that, only weeks earlier, had still been arguing over how quickly rates should fall.

The Monetary Policy Committee now sits in a narrower corridor than the Bank would like to admit. Andrew Bailey remains chair. Sarah Breeden is Deputy Governor for Financial Stability. Clare Lombardelli is Deputy Governor for Monetary Policy. Huw Pill is Chief Economist. Dave Ramsden is Deputy Governor for Markets and Banking. The external members are Swati Dhingra, Megan Greene, Catherine L Mann and Alan Taylor. Together they produced a unanimous decision in March. They did not produce a unanimous interpretation of what the shock means.

That distinction is the story. The Bank’s March minutes show that the hold at 3.75 percent did not emerge from a settled shared view that inflation will simply wash through the system and fade. It emerged because the war in the Middle East, by disrupting energy infrastructure and shipping, abruptly changed the near-term inflation path and forced members to stop, reassess and defend different risks under the same vote.

A vote of one, a committee of several minds

The March minutes are unusually revealing. Sarah Breeden said that, absent the shock, the underlying disinflation process had continued broadly as expected and she would have expected to vote for a cut again in March. Dave Ramsden said much the same: the data since February had broadly matched his expectations and suggested continuing disinflation, so he would otherwise have voted for a 25 basis point cut. Alan Taylor said the disinflation process had been nearly complete before the Middle East events perturbed the near-term environment. That is not the language of a committee united in conviction. It is the language of a committee interrupted.

On the other side of the reaction function, the warning lights are plainly on. Clare Lombardelli said the conflict would raise inflation and reduce output, not only through direct fuel and utility costs and indirect business costs, but through broader second-round effects in demand, supply, expectations, wage-setting and pricing behaviour. Megan Greene said the risk of inflation persistence had risen, perhaps significantly, because of the negative supply shock. Catherine Mann said sustained pressure on energy prices could re-embed the inflation persistence of the last few years. Huw Pill said the inflationary impulse would flow through direct and indirect channels and that the risk of second-round effects remained substantial.

February belonged to disinflation. March belonged to energy.

The significance of March only becomes clear when set against February. In its February 2026 Monetary Policy Report, the Bank said CPI inflation was expected to fall back to around the 2 percent target from April. It said pay growth and services price inflation had generally continued to ease, that the risk from greater inflation persistence had become less pronounced, and that Bank Rate was likely to be reduced further. The committee then voted 5-4 to hold, with four members favouring a quarter-point cut to 3.5 percent.

That was the baseline. Then the war arrived. By March, the Bank was saying the conflict had caused a significant increase in global energy and commodity prices and that CPI inflation would be higher in the near term as a result. It warned that the risk of domestic inflationary pressure through second-round effects would be greater the longer higher energy prices persisted. The Bank’s own public explainer was blunter still: war in the Middle East had disrupted the transportation and supply of energy, raising its price and pushing up household fuel and utility bills as well as companies’ costs.

In other words, this was not a committee drifting gradually from one routine meeting to the next. It was a committee whose working inflation narrative was broken by a fresh external shock before credibility had fully been restored. Britain did not enter this episode with inflation back at target and safely anchored expectations. It entered with CPI still at 3.0 percent in February, core inflation at 3.2 percent, regular pay growth at 3.8 percent, services inflation still running above long-run norms, and a labour market that had softened but not become irrelevant to pricing behaviour.

The weak labour market is not an answer. It is part of the trap.

The obvious rebuttal is that this is not 2021 or 2022. Wage growth has eased. Unemployment was 5.2 percent in the three months to January. The ratio of unemployed people to vacancies was 2.6. Labour market slack has built. On that view, the risk of a wage-price spiral is smaller and the Bank should not panic into treating every energy spike as the start of a second inflation wave.

That objection is real. It is also incomplete. A softer labour market reduces the probability of a classic wage-price spiral. It does not eliminate the policy problem. The danger confronting the MPC is not simply that wages accelerate tomorrow morning. It is that a country already above target, with household inflation expectations still elevated over the medium term, absorbs another energy shock in a way that keeps inflation sticky for longer and forces the Bank into a worse trade-off later. A weak economy does not rescue the committee from that dilemma. It sharpens it.

The Bank’s own Financial Policy Committee has already described the current moment as a substantial macroeconomic shock that has increased risks to financial stability. That is central to the story. Britain is not choosing between clean growth and clean price stability. It is moving into a stagflation-style squeeze in which higher imported energy costs and weaker domestic activity arrive together. That is why the argument inside the MPC matters. Some members still see a world in which the Bank can look through part of the shock and resume easing once the near-term disturbance fades. Others fear that if the Bank indulges that hope too easily, it will repeat the old error of underestimating persistence and be forced into a harder response later.

Andrew Bailey, Huw Pill, Catherine Mann and the politics of caution

Naming the people matters because the committee’s argument is no longer abstract. Andrew Bailey has to hold together a policy line that does not overreact to an external shock while also preserving the Bank’s anti-inflation credibility. Huw Pill’s language makes clear that he is alive to the second-round danger even if monetary policy cannot do much about the first-round jump in energy prices. Catherine Mann has set out the most explicit warning that persistence can be re-embedded through the salience of energy bills, staggered wage contracts and state-dependent firm pricing. Clare Lombardelli has framed the shock in the broadest macroeconomic terms: inflation up, output down, second-round risks alive.

Against that, Sarah Breeden, Dave Ramsden and Alan Taylor matter because they show how close the committee was to a different path before the shock hit. Breeden and Ramsden effectively say the same thing in different words: the incoming data had not destroyed the disinflation story, but the energy shock changed the immediate policy judgment. Alan Taylor goes further in one respect. He explicitly warns against inferring a durable directional shift from one meeting, suggesting that in a benign scenario a milder shock could still be looked through and might eventually imply faster or deeper cuts once inflation risks subside. Swati Dhingra also leaves room for a more modest interpretation, saying that limited scope may exist for major pass-through and second-round effects given the state of the labour market and broader domestic demand.

That is the shape of the committee now. It is not neatly divided into cartoon hawks and doves. It is divided over what kind of shock this is, how persistent it might become, and how much pre-emptive discipline the Bank needs before the data harden one way or the other.

What the market still may be getting wrong

Markets like clean stories. The Bank does not have one. There is a temptation to price every inflation scare as if the committee must either validate it with tighter policy or dismiss it as noise. The minutes suggest something harder and less elegant. The MPC is trying to avoid two mistakes at once: tightening too aggressively into an externally driven supply shock, and waiting too long if that shock begins to alter pricing behaviour and inflation expectations more deeply than the soft-demand backdrop would normally allow.

That is why the next step matters more than the last vote. The meeting due on 29 April will not simply revisit the question of whether Bank Rate should stay at 3.75 percent. It will test whether the members who still see a disinflation process interrupted, rather than overturned, can hold their ground against those who now see renewed persistence risk as the larger danger. If energy prices remain elevated and the inflation profile worsens further, the unanimity of March may look less like consensus than like the last moment before the committee’s differences become impossible to hide.

The Bank of England is not calmly managing a routine inflation scare. It is trying to decide whether a war-driven energy shock has merely delayed easing or reopened the inflation fight it thought it was beginning to win. The official documents do not support complacency. They support a narrower, harsher conclusion: the Bank’s vote was unanimous, but its confidence was not.