LONDON — Despite the recent agreement between the United States and Iran to cease hostilities and reopen the Strait of Hormuz, British officials warn that inflationary pressures linked to the conflict are expected to persist throughout 2024. The Bank of England maintained its benchmark interest rate at 3.75 percent on Thursday, citing ongoing uncertainty related to elevated energy prices as a primary concern for the British economy.

The U.S.-Iran deal, which commits both nations to pursue a comprehensive agreement within 60 days, has led to modest declines in oil and natural gas prices. However, these energy costs remain above pre-conflict levels, partly due to logistical delays in restoring production and exports from the Persian Gulf, as well as the potential for continued regional instability.

Andrew Bailey, governor of the Bank of England, noted that the inflationary effects stemming from higher energy prices over the past several months are already embedded "in the pipeline." The bank’s monetary policy committee, composed of nine members, voted predominantly to keep rates unchanged. Officials pointed to lingering economic factors that had suppressed inflation before the conflict, noting that consumer price increases in May remained steady at 2.8 percent year-over-year.

Nonetheless, two committee members, Megan Greene and Huw Pill, advocated for an immediate quarter-point rate hike, expressing concern over the possibility that inflation might become more deeply rooted in the economy. Some policymakers have argued that rising borrowing costs—reflected in the higher rates charged by banks to businesses and households—might help mitigate inflationary risks, potentially justifying a hold on rate changes for the remainder of the year.

The conflict’s impact on energy prices has influenced central banks internationally. The U.S. Federal Reserve opted to keep rates steady in its latest decision but remains divided over the prospects for possible rate hikes later in the year. Meanwhile, the European Central Bank raised interest rates for the first time since September 2023, citing increasing inflationary pressures across the eurozone. The Bank of Japan also raised rates to 1 percent, marking a 31-year high.

In Britain, the decision to maintain current rates comes amid broader economic challenges, including elevated cost-of-living pressures. These strains add complexity for Prime Minister Keir Starmer’s government, which faces political uncertainties following poor results in recent local and regional elections. On Thursday, a special election was underway in northern England that could see Andy Burnham, a candidate for Labour Party leadership, return to Parliament and potentially position himself as a future prime ministerial contender.