The ECB and the BoE kept their policy unchanged on the same day (4/30): European and UK central banks are watching the Iran war and inflation together

The European Central Bank (ECB) and the Bank of England (BoE) announced on April 30 the same day that they would hold interest rates steady. The ECB kept its deposit facility rate at 2%, for the third consecutive meeting without a change; the BoE held its benchmark rate at 3.75% with a vote of 8 to 1, with only its Chief Economist, Huw Pill, calling for a rate hike to 4%. The decisions by both central banks jointly reflect the same structural challenge: energy inflation driven by the Iran war has surpassed the central bank’s policy target, but slowing growth also makes further rate hikes hard to bear—arguments about “central banks trapped in a stagflation predicament” are starting to surface.

ECB: Inflation hitting above 3% still holds steady—“Upward inflation risks and downside growth risks have both intensified”

On the same day, the euro zone’s April flash CPI data was released. The year-on-year rate jumped to 3%, far above the ECB’s 2% target, and accelerated noticeably versus March. However, the ECB Governing Council chose to keep the deposit facility rate at 2% and, in its statement, said “upside risks to inflation and the downside risks to growth have intensified,” acknowledging a policy dilemma with pressures on both fronts.

The ECB did not make any advance commitment on whether it will raise rates at the June meeting, and only maintained “data-dependent” language. This leaves room for the subsequent path to be determined by May euro zone CPI and June unemployment data. The market had previously expected the ECB to cut rates to 1.75% in the second half of the year, but this decision and the inflation data suggest that rate-cut expectations need to be recalibrated.

BoE: Hold at 3.75% by 8 to 1—Pill is the only hawk

The BoE’s Monetary Policy Committee (MPC) voted 8 to 1 to keep the benchmark rate at 3.75%. The only voter calling for a hike to 4% was Chief Economist Huw Pill. The MPC meeting minutes noted that “CPI inflation has risen to 3.3% and may be higher later this year, as the impact of rising energy prices continues to feed through.”

In its policy statement, the BoE made a more direct comment on the Iran war’s impact: “The Middle East conflict means the outlook for global energy prices is highly uncertain. Monetary policy cannot affect energy prices, but it will be set in a way that ensures the economic adjustment needed to sustainably achieve the 2% inflation target.” The wording effectively concedes that “BoE policy tools cannot directly ease energy-shock-driven inflation,” choosing to manage the situation through aggregate demand rather than through an interest-rate shock.

ECB and BoE watch from the sidelines in sync: Central bank policy constrained by geopolitical shocks—future path depends on the war’s outcome

What the ECB and BoE choices jointly show is this: when inflation is driven mainly by geopolitical shocks (the Iran war pushing up energy prices) rather than an overheating of aggregate demand, central banks’ traditional policy tools are limited. After the U.S. Federal Reserve also chose on 4/29 to hold rates steady and maintain the 3.5%-3.75% range, G7 major central banks have formed a consistent stance: until the Iran war and the situation in the Strait of Hormuz become clearer, they will fully delay the rate-cut cycle, avoiding overly early easing that would allow energy-driven inflation to spread further.

For markets, this means three expectations need to be recalibrated: (1) rate-cut expectations for the second half of 2026 are pushed back to early 2027; (2) the relative strength among the euro, the pound, and the U.S. dollar is likely to stabilize as central banks hold policy in sync, with exchange-rate momentum mainly driven by the war’s outcome and shifts in risk-aversion capital flows; (3) long-end bond yields are supported by inflation expectations and cannot fall quickly, creating sustained pressure on tech stock valuations and corporate financing costs. The next key point is the June meeting cycle (ECB 6/4, BoE 6/18, Fed 6/17-18), when all three central banks will face the final decision on whether the timing for rate cuts is mature.

This article, “ECB and BoE hold steady on 4/30 together: Europe and the UK central banks watch Iran-war inflation,” first appeared on Chain News ABMedia.