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 pea...