The global bond sell-off that has rocked markets in recent weeks resumed in response to the news from the Middle East \u2013 which came against a backdrop of escalating concern about out-of-control government borrowing.<\/p>\n
Higher oil prices, which had already climbed since hostilities resumed in the Iran war, are expected to drive up inflation, prompting central banks to raise interest rates and putting the brakes on economic growth.<\/p>\n
A line graph showing yields on UK, US, Japanese and German 10-year government bonds since 2000<\/a><\/p>\n Donald Trump suggested on Wednesday that the conflict with Iran could continue until \u201cimmediately after\u201d November\u2019s US midterm elections, at which point he claimed oil prices would be \u201ctumbling downward\u201d.<\/p>\n The European Central Bank (ECB) raised its main interest rate to 2.5% on Thursday<\/a>, with its president, Christine Lagarde, saying: \u201cWe believe inflation will be longer lasting than we had anticipated.\u201d<\/p>\n \u201cThe conflict in the Middle \u200bEast continues \u200bto \u2060generate inflation pressures, and inflation is set to \u200bremain well above target for \u200ban \u2060extended period,\u201d she added.<\/p>\n The ECB president, Christine Lagarde, said eurozone inflation would remain above the central bank\u2019s target for longer than expected. Photograph: Filip Singer\/EPA<\/p>\n As Thursday\u2019s sell-off gathered pace in London, the yield, or interest rate, on 10-year UK government bonds surged above 5.37% \u2013 the highest cost of borrowing since 2007 \u2013 creating a fresh headache for the new chancellor, John Healey.<\/p>\n With less than seven weeks to go until Healey\u2019s first budget on 28 October, higher interest rates on the UK\u2019s debt-pile will raise the cost of future investment projects and eat into the Treasury\u2019s fiscal headroom.<\/p>\n A line graph showing crude prices per barrel since the start of the Iran war<\/a><\/p>\n At the same time, the prospect of higher energy bills as oil and gas prices rise is likely to intensify pressure on the government to help consumers to weather the winter.<\/p>\n Unleaded petrol prices have already risen by 6p a litre since the start of September, according to the motoring organisation the RAC, while the prospect of higher inflation has prompted some banks to raise their mortgage rates.<\/p>\n Healey has promised to provide a \u201cbreathing space\u201d for UK households while also addressing the cost of doing business.<\/p>\n Unleaded petrol prices in the UK have already risen by 6p a litre since the start of September, according to the RAC. Photograph: Murdo MacLeod\/The Guardian<\/p>\n In a speech on Monday<\/a>, however, he also sought to tame bond market fears by committing himself to \u201ccontrolling borrowing to bear down on inflation, and reducing long-term pressures on our public finances\u201d.<\/p>\n
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