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Sharp rises in the price of oil and gas as a result of the war in Iran have set off an economic chain reaction which is already hitting people in the pocket.
The benchmark Brent crude oil remains above $110 a barrel, compared to around $72 before the war.
And a unit of wholesale gas now stands at 150p – almost double the 77p per unit it was just three weeks ago.
As a result, it is thought that inflation – which was anticipated to fall to 2% by the end of the year – could, in fact, now reach 5%, according to Thomas Pugh, the chief economist at accounting firm RSM.
While City traders believe there could be three more interest rate hikes coming later this year.
Money blog: Bank of England says it’s ‘ready to act’ over Iran war
Interest rate hikes
And as these forecasts tick up, so too does the chance of an interest hike.
Towards the end of February the consensus was that borrowing costs would come down this year – the focus of the discussion was simply by how much, and when.
But today, before the Bank of England announced it was keeping the base interest rate at 3.75%, the debate among traders moved.
No longer were they wondering whether there would be a cut, nor whether rates would remain the same. Instead, there was a 3% chance of an increase.
Those same traders have now priced in an increase in June, although it could come as soon as next month, when the energy price cap is expected to rise due to the elevated wholesale energy costs.
April’s meeting of the interest rate setters at the Bank of England is now on a knife-edge, with a 51% chance of no change and a 49% likelihood of a cut, according to London Stock Exchange Group (LSEG)…
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