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Oil above $100 could push UK interest rate outlook higher
Economists said the Bank of England is set to hold rates at 3.75% this week, but higher oil prices linked to the renewed Iran conflict could raise the odds of hikes later this year.
Economists cited by the Guardian Economics said renewed fighting tied to the Iran conflict has lifted oil prices to levels that could affect the UK interest rate outlook, including a scenario where crude returns above $100 a barrel.
The article says the Bank of England is expected to hold interest rates on Thursday and keep them at 3.75% until at least December, with the monetary policy committee vote likely to be 7 to 2. However, the economists warned that the Bank could be forced to revisit its forecasts if an energy shock persists.
Brent crude, the story notes, jumped above $100 a barrel on Thursday before falling back to $96 on Friday, compared with $71 earlier this month. It also flags that gas prices have risen ahead of the period when many European countries refill storage for winter heating.
The Guardian Economics adds that UK economic resilience since the start of the Iran-related events in March could be challenged if fighting reignites, potentially worsening inflation pressures at the pumps. It also quotes Deutsche Bank’s Sanjay Raja, saying the interest rate outlook depends on the duration and intensity of the energy shock and on whether sea channels for tankers remain blocked.
Latest closeWTI crude $90.47 ▼1.9%|Brent $98.38 ▼2.3%