By George Glover

The European Central Bank is likely to follow the Federal Reserve's lead by keeping interest rates unchanged, as policymakers try to figure out what impact the crisis in the Middle East will have on inflation.

The ECB is widely expected to hold borrowing costs at 2% for a seventh meeting in a row on Thursday. Traders are also betting that the Bank of England will maintain rates of 3.75%.

President Christine Lagarde warned in March that the Iran war had "made the outlook significantly more uncertain," suggesting that rates could rise if the conflict sparked a significant flare-up in inflation.

Six weeks later, Iran and the U.S. have agreed a cease-fire. But it's still unclear how long energy prices will remain elevated because of the disruption of shipping through the Strait of Hormuz. That means central bankers are in wait-and-see mode.

Policymakers "are certainly becoming more mindful of the implications of the war for reaching their inflation mandates...Still, this will not sway the majority of panelists to change policy settings this week," Macquarie foreign exchange and rates strategist Thierry Wizman said.

He added that central banks' reliance on backward-looking economic data meant they were likely "to dawdle, rather than hike."

Inflation for the euro area jumped to 2.6% in March, up from 1.9% in February. The European Commission on Wednesday published a survey showing that selling price and household inflation expectations rose in April.

"In one line: Inflation expectations soar, sentiment slumps," Pantheon Macroeconomics' chief euro zone economist Claus Vistesen said.

Write to George Glover at george.glover@dowjones.com

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April 29, 2026 16:30 ET (20:30 GMT)

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