Bank of England may raise interest rates as oil shock from Middle East war drives inflation fears

"Financial markets are pricing in roughly a 70 per cent chance that the Bank of England will increase interest rates by a quarter percentage point before the end of the year, a stark reversal from expectations only a fortnight ago when traders anticipated multiple rate cuts."

"The international oil benchmark Brent crude oil surged nearly 30 per cent within days, briefly trading just below $120 per barrel, its highest level since the energy crisis of 2022. At the same time, the US benchmark West Texas Intermediate crude oil recorded its largest weekly gain on record as traders feared a prolonged disruption to global energy supplies."

"The Strait of Hormuz, which carries around one-fifth of the world's oil exports, has effectively been closed to normal commercial shipping following Iranian threats to target vessels using the route. Energy traders warn that continued disruption could lead to sustained shortages of oil and gas in global markets."

Global oil prices surged nearly 30% following escalating Middle East conflict and disruptions to shipping through the Strait of Hormuz, reversing market expectations for UK interest rates. Financial markets now price a 70% chance the Bank of England will raise rates by 0.25% before year-end, reversing forecasts from two weeks prior that anticipated multiple cuts starting in March. Brent crude briefly traded below $120 per barrel, its highest since 2022, while West Texas Intermediate recorded its largest weekly gain on record. The Strait of Hormuz, carrying one-fifth of global oil exports, faces effective closure due to Iranian threats. Energy traders warn continued disruption threatens sustained global oil and gas shortages. The UK economy faces particular vulnerability due to heavy reliance on imported natural gas for heating and electricity generation.

Read at Business Matters