The slowdown in wage growth would normally strengthen the case for rate cuts, but Brent crude at 113 dollars a barrel and natural gas prices up 30 per cent have overwhelmed the positive signal. Policymakers face the unenviable task of weighing weakening domestic demand against imported inflation they cannot control.

The UK unemployment rate held steady at 5.2 per cent, suggesting the labour market is cooling gradually rather than collapsing. However, the combination of falling real wages and rising energy costs is squeezing household budgets from both sides.

Kathleen Brooks, research director at XTB, noted that "oil is driving the bus in this market" and that risk sentiment will follow energy prices rather than traditional economic indicators for the foreseeable future.

The Bank of England decision comes a day after the Federal Reserve also held rates steady, with both central banks citing Iran-war-driven energy uncertainty as the primary constraint on monetary easing.