Both the ECB and the BoE held rates steady Thursday, as expected, with policymakers at both banks signaling discomfort with the uncertainty engendered by the war.

Recall that Andrew Bailey and co. were actually pondering a cut prior to the onset of full-on hostilities with Iran. Instead, they voted unanimously to keep rates on hold last month in light of the read-across from the war for energy costs. The abrupt pivot triggered a dramatic repricing in front-end UK rates.

Fast forward six weeks and the BoE remained on hold. The vote was 8-1. Huw Pill wanted a quarter-point hike.

“CPI inflation has increased to 3.3%, and is likely to be higher later this year as the effects of higher energy prices pass through,” the bank said, adding that there’s “a risk of material second-round effects in price and wage-setting, which policy would need to lean against.”

The figure above gives you a sense of the impact the war had on the bank’s near-term inflation forecast. Headline CPI was seen dropping by more than a full percentage point by Q3. Now, it’s expected to linger at March’s 3.3% pace for the foreseeable future before rising “somewhat further” in Q4.

“The majority” of the projection revision “is due to a larger direct contribution from higher energy costs [which] will also feed through indirectly to inflation as firms pass higher costs through their supply chains,” the bank warned.

As for the outlook for rates, UK policymakers will “monitor closely” developments in the Mideast to determine how the situation “propagates through the economy.” The BoE’s ready and willing “to act” (read: to hike) in the event the fallout from the war jeopardizes price stability.

Meanwhile, at the ECB, the new statement struck an overtly cautious tone, noting that “the war in the Mideast has led to a sharp increase in energy prices, pushing up inflation and weighing on economic sentiment.”

Annual inflation picked up meaningfully in April, Eurostat said Thursday. Headline price growth’s now running a full percentage point above target.

As the figure above shows, energy’s the problem. Again. The energy gauge rose nearly 11% YoY this month, more than double March’s pace.

Of course, the ECB has to be especially vigilant about downside risks to the economy, which barely expanded in Q1 versus the previous quarter, separate data released Thursday showed.

Suffice to say stagflation risk is palpable in Europe. For now, Christine Lagarde’s waiting for clarity, but traders came into Thursday’s meeting with a hike priced for June and two more by year-end.

“The implications of the war for medium-term inflation and economic activity will depend on the intensity and duration of the energy price shock and the scale of its indirect and second-round effects,” the ECB went on, in the new statement. “The longer the war continues and the longer energy prices remain high, the stronger is the likely impact on broader inflation and the economy.”