Bank of England’s Huw Pill says Iran war has not de-anchored inflation expectations

Bank of England Chief Economist Huw Pill delivered a message on July 31 that amounts to cautious optimism wrapped in a very large caveat: the Iran war has pushed energy prices sharply higher, but it hasn’t fundamentally shaken the public’s belief that inflation will eventually return to the Bank’s 2% target.

That distinction matters more than it might sound. When long-term inflation expectations stay “anchored,” it means businesses and workers aren’t yet behaving as though permanently higher prices are inevitable. Once that belief breaks, central banks face a much uglier fight. Pill is essentially saying the UK hasn’t crossed that line, at least not yet.

The numbers behind the reassurance

The backdrop is anything but calm. Since the Iran conflict began with attacks on February 28, 2026, Iranian blockades in the Strait of Hormuz have choked one of the world’s most critical energy chokepoints. UK natural gas prices have surged more than 70%, while petrol prices have climbed roughly 10%.

Those are the kinds of supply shocks that keep central bankers up at night, and for good reason. The BoE’s own scenario analysis projects that if elevated energy prices persist, UK inflation could peak as high as 6.2% in early 2027. The more moderate baseline forecasts still put inflation in the 3.2% to 3.5% range, well above the 2% target.

A dissenting voice on rates

Pill isn’t just offering commentary from the sidelines. He was one of three members of the Monetary Policy Committee who voted against the majority decision on July 30 to hold the Bank Rate steady at 3.75%. The final tally was 6-3 in favor of no change, with Pill on the losing side, pushing for a rate increase.

His reasoning has been consistent: “prompt but modest” rate hikes are the appropriate response to energy-driven inflationary pressure. Waiting for perfect clarity on how long the conflict will last, in Pill’s view, risks letting inflation embed itself into wage negotiations and corporate pricing decisions before the Bank acts.

Pill has flagged the risk of secondary effects, noting the potential for these dynamics to build through the latter part of 2026 and into 2027, where businesses and employees might attempt to recover losses through broader price increases and wage demands.

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