Will rates go higher in Europe this week? Central banks confront stagflation threat

the ecb and bank of england both announce policy decisions on thursday, with markets expecting them to hold rates steady. the iran conflict is already hitting march data across europe, raising stagflation fears — slow growth, high inflation, rising unemployment. the ecb's key rate sits at 2%, the boe's at 3.75%. euro zone inflation is 2.5%, uk inflation is 3.3% — both above their 2% targets. economists at oxford economics say energy prices aren't far enough above ecb assumptions to force a hike yet, and surveys show a more front-loaded economic hit than in 2022, dampening second-round effect worries. bnp paribas expects a 25bp hike at the june meeting if data supports it, but no pre-commitment this week. for the boe, a majority of economists polled by reuters expect an 8-1 vote to hold, with chief economist huw pill the likely lone dissenter favoring a hike. the bank's march forecast saw inflation peaking between 3% and 3.5% in mid-2026 due to energy prices. morgan stanley analysts say the question isn't whether inflation will rise, but whether tightening to return to 2% faster is worth the growth loss.