Bank now expected to raise interest rates twice this year
City traders are betting that the Bank of England will raise UK interest rates at least twice this year, to combat the inflationary hit from the Middle East crisis.
The money markets are now fully pricing in a quarter-point rise in Bank rate, to 4%, by June.
A second hike, to 4.35%, is fully priced in by September.
These implied interest rates are volatile today, though.
Traders are reacting to the Bank’s prediction that inflation will average 3% in the second quarter of this year, not fall to 2.1% as previously expected (see here).
They are also noting its concern about the risks of “second-round effects in wage and price-setting” – that high energy bills will lead to higher wage demands, and higher prices in the shops.
Updated at 08.34 EDT
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European gas prices have slipped back a little from their earlier highs, but are still on track for significant gains today.
The UK month-ahead gas contract is up almost 15% at 160p a therm, having hit 175p this morning.
The continental European month-ahead gas contract is up almost 16%, at €63.2 per Megawatt hour.
Traders will have noted the news that Iran’s strikes on Qatar damaged facilities responsible for producing 17% of the company’s LNG export capacity (see earlier post).
ShareCEBR: UK energy bills on track to top £2,100
UK energy bills are on track to exceed £2,100 per year, according to consultancy CEBR, due to the surge in oil and gas prices this month.
That would be a steep increase on the latest energy price cap, of £1,641 a year from April-June.
CEBR has calculated that the quarterly cap will rise sharply when it is next set (it is calculated from wholesale energy prices), saying:
double quotation markThe latest developments in the Middle East, including the recent strike on the Ras Laffan export facility, have pushed up wholesale energy prices. At current levels, this implies a Q3 Ofgem price cap exceeding £2,100 if sustained, with higher bills likely even if prices ease. The conflict is also expected to shave around 0.1 to 0.3 percentage points off UK GDP growth over the next year.
ShareGap between US crude and Brent has widened in crisis
Jillian Ambrose
Global oil prices have surged in response to escalating military aggression against key energy infrastructure in the Gulf – but in the US oil prices have barely budged in what could prove a double blow to Asian economies.
The widening gap between the international benchmark, Brent crude, and the US oil price known as the West-Texas Intermediary (WTI) has reached an 11 year high as traders begin to weigh the differing fortunes of world regions in response to the global energy supply shock.
The price of Brent has climbed by over 10% to over $119.13 a barrel earlier today, close to the peak touched on March 9, fuelled by fears that attacks on the Gulf’s regional infrastructure could prolong the supply crisis facing the Gulf’s biggest energy buyers in Asia and Europe. It’s now up 4% at $111.62/barrel.
But in the US, the world’s biggest energy producer, the WTI is up just 1.7% at $97.95 a barrel, reflecting the economy’s strong domestic production and strategic reserves.
While Brent crude typically trades at a premium to the WTI, the current oil price shock risks turning the crisis “into a regional wrecking ball”, according to asset manager Stephen Innes. Economies in Asia and Europe will be forced to weather higher outright oil prices relative to the US, but also contend with a stronger US dollar which makes buying oil on the dollar-denominated market even more expensive.
Innes said:
double quotation mark“If escalation continues, the next phase is not just higher oil but enforced behavioral change, where demand is rationed through price and inflation becomes embedded rather than episodic. That is when the shock evolves from a market event into an economic regime shift.”
The UK interest rate predictions market has calmed down slightly, since Bank of England governor Andrew Bailey suggested investors were getting over-excited in their predictions for higher interest rates.
The market is still fully pricing in one hike by June, and a second one in September.
But the prospect of a third rate rise has vanished from the money market pricing screen.
Paul Dales, chief UK economist at Capital Economics, told clients that the BoE is leaning a bit more towards rate hikes rather than cuts, adding:
double quotation markThat said, in an unusual move presumably in response to the markets pricing in 75 basis points of rate hikes, 100 minutes after the policy announcement Governor Bailey was quoted as saying “I would caution against reaching strong conclusions about us raising interest rates” and that “the markets are getting ahead of themselves in assuming rate rises”.
ShareProlonged high oil prices could ‘crimp’ AI boom, WTO warns
Heather Stewart
An extended period of high oil prices as a result of war in the Middle East could “crimp” the AI boom, the World Trade Organization’s chief economist has warned.
The war and its impact on energy and fertiliser costs is the main risk to the global economy identified in the WTO’s latest Global Trade Outlook.
But the Geneva-based body also raised a question mark about the continued strength of AI investment, which in 2025 helped to offset the hit to global trade from Donald Trump’s tariffs.
The WTO has cut its forecast for growth in world trade in goods to 1.9% this year, down from 4.6% in 2025.
And it warned that the slowdown could be even sharper; if crude oil and liquefied natural gas prices remain high throughout 2026 due to the conflict, global trade in goods could slow further to 1.4%, WTO economists said.
ShareBoE’s Bailey: I’d caution against strong conclusions about rate hikes
Bank of England governor Andrew Bailey has suggested the financial markets might be getting carried away by forecasting several UK interest rate rises this year.
Speaking after rate hike expectations rose sharply this afternoon, Bailey told the BBC that traders shouldn’t reach “any strong conclusions” about the path of borrowing costs.
In a suggestion that financial markets are getting ahead of themselves, Bailey said:
double quotation mark“I would caution against reaching any strong conclusions about us raising interest rates…. Today we’ve given a very clear message. The right place to be is on hold.”
ShareWall Street joins the sell-off
There are losses on the New York stock market at the start of trading, but rather more modest than in Europe today.
The Dow Jones Industrial Average has lost 205 points, or 0.44%, in early trading to 46,020 points. It contains 30 large US companies.
Boeing (-3.4%) and Caterpillar (-2.6%) are the biggest fallers, as investors anticipate a protracted period of energy disruption which would hurt demand for airlines and construction equipment.
The broader S&P 500 share index has dropped by 0.5%.
In contrast, Europe’s Stoxx 600 index is down almost 2.5% today, after Japan’s Nikkei shed 3.4% overnight.
ShareIran attack damage wipes out 17% of Qatar’s LNG capacity for three to five years
NEWSFLASH: Iran’s attacks on Qatar have damaged facilities that produce 17% of QatarEnergy’s liquefied natural gas export capacity, and it could take several years to repair the damage.
That’s according to QatarEnergy CEO Saad al-Kaabi.
Speaking to Reuters a day after the attack on Ras Laffan, Qatar’s huge industrial complex, al-Kaabi suggested it could take three to five years to repair them, meaning it may not be able to meet contracts over that time.
👀
EXCLUSIVE- QATARENERGY CEO TELLS REUTERS: WE MAY HAVE TO DECLARE FORCE MAJEURE ON LONG-TERM CONTRACTS FOR UP TO FIVE YEARS FOR LNG SUPPLIES TO ITALY, BELGIUM, KOREA AND CHINA
– From Reuters.
This is bad.
— Ed Conway (@EdConwaySky) March 19, 2026
He says:
double quotation mark“I never in my wildest dreams would have thought that Qatar would be – Qatar and the region – in such an attack, especially from a brotherly Muslim country in the month of Ramadan, attacking us in this way.”
Updated at 10.40 EDT
European countries and Japan: ready to help on Hormuz, stabilise energy markets
Now this is interesting….
Britain, France, Germany, Italy, the Netherlands and Japan have said they will take steps to stabilise energy markets and were ready to join “appropriate efforts” to ensure safe passage through the Strait of Hormuz.
In a join statement, the countries also condemned attacks by Iran and called on it to halt its actions immediately.
They say:
double quotation mark“We express our readiness to contribute to appropriate efforts to ensure safe passage through the Strait.
We welcome the commitment of nations who are engaging in preparatory planning.”
The statement also welcomed the release of strategic petroleum reserves, adding:
double quotation mark“We will take other steps to stabilise energy markets, including working with certain producing nations to increase output.”
ShareWhy the Bank of England is really worried
The Bank of England’s MPC is “really worried” about the inflationary impact of the oil shock, Professor Costas Milas of the Management School at University of Liverpool tells me.
A chart showing the inflationary impact of higher oil prices Photograph: Professor Costas Milas
Professor Milas explains:
double quotation markTo see this, I plot the impact of the oil shock (assuming oil prices stay at their current level for a while rather than dropping fast or even…rising further).
UK inflation rises by up to 1.5 percentage points by the end of the year and reaches a peak in early 2027. The impact is statistically significant (using a 95% confidence interval) in a model of oil prices, inflation, UK growth and Bank Rate. This is clearly a nasty oil price shock…
ShareECB leaves eurozone interest rates on hold and hikes inflation forecasts
The European Central Bank has voted to leave eurozone interest rates unchanged.
Announcing its decision, the ECB says it is “determined to ensure that inflation stabilises at the 2% target in the medium term”.
The eurozone central bank warns:
double quotation markThe war in the Middle East has made the outlook significantly more uncertain, creating upside risks for inflation and downside risks for economic growth.
It will have a material impact on near-term inflation through higher energy prices. Its medium-term implications will depend both on the intensity and duration of the conflict and on how energy prices affect consumer prices and the economy.
It has also lifted its inflation forecasts, due to the Middle East war. Headline inflation is now expected to average 2.6% in 2026, 2.0% in 2027 and 2.1% in 2028.
Back in December, the ECB had forecast inflation would be 2.2% in 2026, 1.9% in 2027 and 2.0% in 2028.
ShareFTSE 100 share index dips below 10,000 points
The stock market selloff is accelerating in London.
Almost 3% has been wiped off the blue-chip FTSE 100 share index so far today. It just fell below the 10,000 point mark, hitting 9997.41 points, its lowest since 8 January, before struggling back to 10,004 points…
Apart from BP (+2.5%), every share on the index is down today.
Precious metal producers Fresnillo (-9.2%) and Endeavour Mining (-9%) are leading the sell-off, with banks, and mining companies also among the top fallers.
Before the Iranian war began, the FTSE 100 hit 10,934 points – so it’s lost 8.5% of its value since, hitting the value of pension funds and ISAs across the UK.
Updated at 09.19 EDT
The market panic caused by the Middle East crisis is continuing to ripple across assets today.
Silver has tumbled by almost 11% to $67.1 an ounce.
Gold is down 5.7% at $4,539 an ounce.
ShareTwo-year bond yields on track for biggest jump since 2022 mini-budget crisis
UK government bond prices are being hammered by City traders, following the Bank’s warning that the energy crisis could create ‘second round’ effects to push inflation higher.
With prices falling, the yields (or interest rate) on UK gilts are pushing sharply higher.
Shorter-dated UK bonds are particularly hit.
The yield in two-year gilts have jumped by 35 basis points (0.35 of a percentage point) to 4.47%, the highest since January 2025.
That puts them on track for the biggest daily increase since Liz Truss’s “mini-budget” crisis of September 2022.
The Bank of England MPC must have had one of their most difficult meetings, before deciding to leave rates unchanged today, suggests Michael Browne, global investment strategist at Franklin Templeton Institute.
He writes:
double quotation markWhat should they do in the face of a very real inflationary threat? As we dust off the 2022 playbook, we know the damage energy driven inflation can inflict – but to use the Scottish legal term, it is not yet proven.
“Last night, US markets sold off sharply after [Federal Reserve] chairman Powell failed to sound tough enough. Bond markets are nervous and need reassurance that monetary authorities are on top of their brief and prepared to raise interest rates sooner rather than later.
The minutes suggest the MPC is very alive to the risks and while that may not be enough for the market today, investors should be re-assured that they will act, even though a rate rise would be bad news for the economy.”
In the parallel universe where the US and Israel didn’t attack Iran on 28 February, we’d probably be talking about a cut to interest rates today.
Just before the war, a rate cut today was seen as an 80% chance by the money markets.
Bank deputy governor Sarah Breeden says she would have expected to vote for a cut today, has circumstances not changed:
double quotation markConflict in the Middle East has significantly shifted the outlook for inflation. Absent this shock, the underlying disinflation process had continued broadly as I expected and, consistent with my vote in February, I would have expected to vote for a cut again in March. But the conflict will have a significant, though at this point highly uncertain, impact on inflation.
Updated at 08.41 EDT
Why are mortgage rates going up when the Bank of England base rate hasn’t changed?
Although the Bank of England has left rates on hold today, mortgage rates have been rising since the Iranian war began.
Here’s why:
ShareShareBank now expected to raise interest rates twice this year
City traders are betting that the Bank of England will raise UK interest rates at least twice this year, to combat the inflationary hit from the Middle East crisis.
The money markets are now fully pricing in a quarter-point rise in Bank rate, to 4%, by June.
A second hike, to 4.35%, is fully priced in by September.
These implied interest rates are volatile today, though.
Traders are reacting to the Bank’s prediction that inflation will average 3% in the second quarter of this year, not fall to 2.1% as previously expected (see here).
They are also noting its concern about the risks of “second-round effects in wage and price-setting” – that high energy bills will lead to higher wage demands, and higher prices in the shops.
Updated at 08.34 EDT