Britain’s central bankers are preparing to raise interest rates because Donald Trump’s war on Iran has pushed oil back above $100 a barrel, and the people running the country’s monetary policy are on the record about it. The Bank of England will almost certainly hold rates at 3.75% on Thursday. Seven of nine MPC members will vote to keep doing nothing. Two — same two as June, per Reuters’ tally — will vote to hike now. The split is the tell. The hawks would have a working majority once the energy number crosses the threshold, and the threshold is a price of oil that the US Navy is currently setting by stopping tankers.

The economists are not hiding the mechanism. Deutsche Bank’s Sanjay Raja: upside risks to rates, “a second energy wave will likely amplify uncertainty around the inflation path.” Nomura’s George Buckley: at $100 a barrel, financial markets are pricing two quarter-point hikes. Capital Economics’ Ruth Gregory: 7% inflation implies Bank Rate at 4.75%. The University of Liverpool’s Costas Milas: hike “possibly as early as September.” The National Institute’s David Aikman: longer inflation stays above target, the more expectations un-anchor, the more wages chase, the more the Bank has to hike. This is what a Phillips-curve transmission mechanism sounds like when economists are not pretending the energy shock is temporary.

It is also what a policy regime looks like when a central bank is being forced to choose between two failures and is being honest about which one it will pick.

The honest version of the choice: when a supply-driven energy shock hits a small open economy, the central bank can either (a) raise rates to choke second-round effects before wages and expectations re-anchor inflation upward, or (b) hold rates and accept that headline inflation will print above target for the duration of the shock, on the working assumption that the shock is temporary and the second-round pass-through will be small. Standard pre-2022 central-bank practice, in the days when energy shocks were treated as transitory supply events to be looked through, defaulted to (b). The 2022 episode — when the European energy crisis, the post-Covid goods unwind, and the war in Ukraine produced a generalized inflation that did not look through — taught every MPC on earth the cost of being wrong about (b). Aikman is naming exactly that lesson. Gregory is naming what happens if the Bank repeats the 2022 mistake in slow motion.

So far this is conventional central-banking. The rigging is not in the rate decision. The rigging is upstream.

The war Donald Trump started in March produced, by April and May, the first oil spike — Brent through $100, the Guardian and the financial press recording it in real time. A “fragile ceasefire” was negotiated. The ceasefire broke last week. Oil went back through $100. The Bank of England is now expected to raise rates, or to hold and then raise, because a US president decided to conduct a war of choice in the Persian Gulf and then a blockade-by-tanker-stoppage of Iranian ports, and because the costs of that decision are being externalized onto British mortgage holders, British renters, British small businesses, and British consumers at the petrol pump. The MPC is not setting monetary policy in response to a domestic price-level shock it can address. It is setting monetary policy in response to a foreign-policy decision made in Washington that it cannot address at all, except by transferring the cost to British borrowers.

This is the part the economists’ quoted language works hard not to say. Raja names “the duration of the unfolding energy shock” as the variable, as if the shock were a meteorological event. Buckley names the price thresholds as if they were data the Bank were passively observing. Milas names the BoE’s incentive to “act soon” because “the public remains dissatisfied with the BoE” — the public is dissatisfied with the Bank because their cost of living has been pushed up by a war the British public did not vote for, did not authorize, and cannot stop, and the Bank’s tool for dealing with their dissatisfaction is to make the borrowing costs of British households and small businesses higher. The rigging is not the rate path. The rigging is that the Bank is being told, by the structure of the world, to inflict pain on British borrowers to compensate for a foreign-policy decision made by a foreign government.

The symmetric-application check. I have spent the last several columns walking the supply-side, the JCT-memo-launderers, the post-2017 methodology distortions. This is the other side. The Bank of England is the textbook inflation-targeting central bank of the late-twentieth-century consensus. The MPC is staffed by serious people, the minutes are published, the votes are public, the Bank has a remit from HM Treasury to return inflation to 2% in the medium term. It is doing what it is institutionally designed to do. There is no Holtz-Eakin pivot here. There is no Tax Foundation dynamic-scoring distortion. There is a clean, public, defensible technical case for the rate path the economists are describing. I name this because the symmetric-application discipline requires it.

The substantive accusation is at a different level. A central bank with a 2% inflation target, an energy-shock transmission mechanism, and an MPC that votes in public, is being asked to do work it cannot responsibly do, because the price shock is being delivered exogenously by a foreign military action. The honest version of the question the MPC is not being asked to answer: should the United Kingdom’s monetary policy be set on the assumption that the United States will continue to bomb Iran and blockade its ports? Because that is the assumption embedded in the current forecast. If oil stays at $100 because the war continues, the Bank raises rates. If the war ends and oil drops to $71 — the level recorded earlier this month, per the article — the Bank cuts. The Bank of England’s monetary policy is now, structurally, a function of US naval deployments in the Strait of Hormuz. This is the rigging. The rate decision is the mechanism. The rigging is upstream of the mechanism, in the foreign-policy decision that produces the price.

One more thing. The article quotes Alpine Macro’s Harvinder Kalirai dissenting: the Bank should “look through the oil shock and political noise” and hold, on the view that UK demand is too weak to pass through input costs into prices. This is the other side of the central-banking trade-off, and Kalirai is making the honest version of it. He is wrong on the call, in my reading, for the reason the hawks are right: the second-round wage-and-expectations channel is real, and a central bank that has lost credibility on inflation once — the 2022 episode — cannot afford to test whether it can lose it again. But Kalirai is the only economist in the article naming the structural condition the others are not: UK demand is not strong enough to absorb a rate hike on top of an energy shock. The rate hike, if it comes, will land on households and small businesses that did not cause the price shock and cannot escape it. The Bank of England is being put in the position of a debt collector for a foreign government’s war.

The score is the score. The author of the war does not get to grade the inflation.

— Prudence Wonk

Prudence Wonk is a heteronym. The institutional-veteran register, the 35-year CBO tenure encoded in the disclosure footer, the Pittsburgh substrate, the widowhood, the op-ed work since 2022 — all are documented character elements of the heteronymic ensemble at Main Street Independent and not biographical claims about any real person. The disclosure footer at the foot of the published column carries the full heteronymic disclosure.