BoE Faces Heightened Market Pressure as Middle-East Energy Shock Fuels Rate-Rise Debate

A recent drone strike on a Saudi pipeline that supplies oil to the Red Sea has pushed Brent crude to about $107 a barrel, the highest level since May, and lifted European natural-gas prices to peaks not seen since the early stages of Russia’s invasion of Ukraine. Market participants warn that the surge could feed broader inflation in the United Kingdom if it becomes entrenched.

Bank of England under pressure to raise interest rates

• The 30-year UK gilt yield has risen to near 6 %, its highest since 1997.

Bank of England under pressure to raise interest rates

• Short-term gilt pricing implies the Bank of England could deliver up to four rate hikes within the next 12 months.

Bank of England under pressure to raise interest rates

• The U.S. 10-year Treasury yield has breached 5 % for the first time since 2007, underscoring global bond-market unease.

Bank of England under pressure to raise interest rates

• Governor Andrew Bailey has highlighted “upside risks” to the policy path from higher energy prices but has not signalled an imminent hike.

Bank of England predicted to raise interest rates this year

• James Moberly and Sven Jari Stehn, economists at Goldman Sachs, warned that recent spikes in wholesale energy costs and a larger-than-expected rise in headline inflation have heightened pressure on the Monetary Policy Committee (MPC).

Bank of England predicted to raise interest rates this year

• Andrew Wishart, senior UK economist at Berenberg, argued the Bank “must deliver” on earlier promises to raise rates if the Iran war’s energy shock spreads.

Bank of England under pressure to raise interest rates

• Andrew Prosser, head of investments at InvestEngine, said market consensus still expects the base rate to stay at 3.75 % but that there is roughly a one-in-four chance of a 0.25 % rise at the upcoming Thursday meeting.

Manchester Evening News

• 30-year gilt yield: ~6 % (highest since 1997).

Bank of England under pressure to raise interest rates

• Brent crude price: ~$107 per barrel.

Bank of England under pressure to raise interest rates

• U.S. 10-year Treasury yield: >5 % (first breach since 2007).

Bank of England under pressure to raise interest rates

• Market pricing suggests up to four BoE rate hikes could be priced in over the next year.

Bank of England under pressure to raise interest rates

• Goldman Sachs forecasts a rise to 4 % by November, while also noting the possibility the MPC will keep rates at 3.75 % at Thursday’s meeting.

Bank of England predicted to raise interest rates this year

• ING’s James Smith argues there is “very little sign” that higher oil and gas prices are widening into the broader inflation basket and expects energy prices to fall by November.

Bank of England predicted to raise interest rates this year

• “The recent gilt market movements seem to be intent on showing central banks they are out of time – the market is expecting action,” — Anthony Brinkman, high-yield portfolio manager at Principle Asset Management

Bank of England under pressure to raise interest rates

The MPC meets on Thursday to decide whether to adjust the Bank of England’s base rate. Minutes from that meeting could reveal whether policymakers view the current energy shock as temporary or as a catalyst for more durable inflationary pressure. A further forecast from Goldman Sachs points to a potential November decision to raise rates to 4 %, contingent on the trajectory of global oil and gas markets.

Bank of England predicted to raise interest rates this year