Rising oil prices could force up UK interest rates, say economists
📰 source: theguardian_business · 💼 business
oil prices rising above $100 a barrel could force the bank of england to raise interest rates later this year, city economists warn. the benchmark rate currently sits at 3.75%, and the monetary policy committee is expected to hold steady this week by a 7-2 vote. but a sustained spike in energy costs, driven by renewed middle east conflict, may change that.
george buckley at nomura said at $90 oil markets would price in 1.5 quarter-point hikes; at $100, two hikes. mohamed el-erian noted if oil stays above $90, headline inflation faces significant upward pressure, raising expectations of a boe rate hike even as higher energy taxes activity. ruth gregory at capital economics sketched a worst case: if inflation hits 7%, rates could rise to 4.75%.
yet not all agree. harvinder kalirai at alpine macro expects the boe to look through the oil shock and hold rates, then resume cuts next year. costas milas of liverpool university argued the boe should act soon, possibly as early as september, to quell inflation expectations.
why it matters: rising oil prices threaten to force bank of england rate hikes, risking higher borrowing costs for households and businesses.
source: theguardian_business
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