Central Banks Hold Interest Rates; Oil Prices Rise

Central banks in Europe and the U.K. held interest rates steady on Thursday, citing uncertainty from the Iran war and surging energy prices. The Bank of England kept its main rate at 3.75%, while the European Central Bank maintained its deposit rate at 2%.

Oil prices reached new highs, with Brent crude surpassing $122 per barrel and WTI exceeding $105, driven by the U.S. naval blockade of Iran and the closure of the Strait of Hormuz. Multiple sources reported that the blockade aims to pressure Iran on its nuclear program, with no immediate signs of resolution.

Iran could run out of oil storage capacity within weeks, according to Western intelligence cited in the Jerusalem Post. President Trump stated that the blockade will continue until Tehran abandons its nuclear ambitions.

England's decision followed a vote to hold rates, as policymakers assess the economic fallout from the Middle East conflict, through which a fifth of global crude oil passes. A Bank of England official said the sheer volatility of energy prices makes it impossible to assign probabilities to different scenarios.

The ECB's statement highlighted intensified upside risks to inflation and downside risks to growth, noting that the war has led to a sharp increase in energy prices.

“The upside risks to inflation and the downside risks to growth have intensified." — ECB Governing Council statement (ZeroHedge). Euro zone first-quarter GDP grew by 0.1%, below expectations, while headline inflation surged above 3% in April due to energy costs. The ECB reiterated a data-dependent approach, with no pre-commitment to future rate paths. Markets are pricing in three quarter-point hikes by year-end. rates at 3.50-3.75% on Wednesday, with an 8-4 vote and dissents on the statement's easing bias. The statement shifted language on inflation from "remains somewhat elevated" to "elevated" amid energy price surges. A Fed official stated that the policy stance is appropriate and not on a pre-set course.”