According to a Bloomberg survey, many economists expect the European Central Bank to keep interest rates unchanged at least until 2027, while markets continue to price in the possibility of rate hikes this year. The disagreement largely stems from uncertainty about the duration of the Iran war and its impact on energy prices and inflation. Policymakers led by Christine Lagarde remain alert to the risk of another inflation shock following the surge in energy costs but prefer to wait and assess the real economic impact of the conflict and potential disruptions in the Strait of Hormuz. Most economists still believe that if inflation intensifies again, the ECB’s next move would more likely be a rate hike rather than a cut.

The UK economy nearly stalled at the start of 2026, with GDP showing little meaningful growth in January as the services sector the main engine of the economy weakened. Manufacturing and construction posted only modest gains of 0.1% and 0.2%. This raises doubts about the Bank of England’s forecast of 0.3% growth for the first quarter. Meanwhile, the Iran war and the surge in energy prices, with oil rising above $100, increase the risk of a new inflation shock and could delay interest-rate cuts. A weak labor market, higher mortgage rates, and rising fuel prices are also adding pressure on households and the broader economy

Donald Trump called for the deployment of warships by the United States and several other countries to keep the Strait of Hormuz open so that commercial vessels can pass safely. At the same time, the US and Israel struck military facilities on Kharg Island, but Trump said oil infrastructure was deliberately spared and warned that it could become a target if Iran interferes with ship traffic through the strait. Fighting in the Persian Gulf continues, with Iran carrying out retaliatory attacks on Arab states in the region and US-linked bases. As tensions escalated, Brent crude prices rose above 100 dollars per barrel.

The conflict between the United States and Iran has prompted major global central banks, including the Federal Reserve, the European Central Bank, the Bank of Japan and the Bank of England, to approach monetary policy decisions more cautiously this week. Rising oil prices have increased concerns about a new inflation shock, weakening market expectations for interest-rate cuts, particularly in the US. Meanwhile, investors are now even pricing in the possibility of interest-rate hikes in Europe and the UK later this year.