Energy Shock Puts Bank of England Under Pressure to Raise Rates
Russia Extends Diesel Export Ban Through October CityAM.com is the online presence of City A.M., London's first free daily business newspaper. Both platforms cover financial and business news as well as sport and… The Bank of England is facing mounting pressure to raise interest rates on Thursday amid a global bond market rout fuelled by concerns over runaway government borrowing and sticky inflation.
Investors told Threadneedle Street it was “essential” to rein in prices before the energy shock triggered by the Iran war spreads through the economy and that failing to do so would risk the Bank “losing credibility”.
Government bonds across the developed world have been swept up in a historic sell-off, as oil prices surged to multi-month highs the week four of the world’s largest central banks decide whether to hike interest rates.
The yield on America’s 10-year Treasury – the benchmark for global debt markets – jumped above five per cent for the first time since 2007 in a sign of continued investor unease over the long-term path of inflation.
But the UK’s sovereign debt, issued via bonds known as gilts, has been offloaded more aggressively than that of any other major economy, with both long-dated and short-dated securities unceremoniously dumped by traders.
The 30-year gilt yield neared six per cent on Tuesday, its highest level since 1997, while shorter-term gilt prices now suggest the Bank will hike rates as manyas four times in the next 12 months.
“The recent gilt market movements seem to be intent on showing central banks they are out of time – the market is expecting action,” said Anthony Brinkman, high yield portfolio manager at Principle Asset Management.
He added that investors would continue to charge a higher price for holding government debt if “the Bank of England doesn’t hike and fails to communicate its long-term trajectory in a convincing manner”.
Earlier this week, Saudi Arabiashut down a vital pipelineresponsible for carrying oil to the Red Sea, after it was hit in a drone attack.
The strike came amid a dramatic re-escalation of tensions in the region, which has revived supply concerns in global energy markets.
At $107 a barrel, Brent crude is now trading its highest level since May, while European natural gas prices are at highs not seen since the initial fallout from Russia’s Ukraine invasion.
The spiking energy markets have reignited fears businesses will be forced to pass their higher costs onto consumers, pushing up prices across the economy despite there being considerable slack in Britain’s labour market.
| Product | Price | Change |
|---|---|---|
| Brent Crude | $102.14/bbl | +0.34% |
| WTI Crude | $96.90/bbl | +0.21% |
| EN590 Diesel | $846/MT | +0.18% |
| Jet Fuel A-1 | $1090/MT | +0.55% |
| Mazut M100 | $450/MT | -0.15% |
| Bitumen 60/70 | $470/MT | +0.08% |
| Sulphur Gran 99.5% | $470/MT | -0.44% |
| Urea 46% Gran | $650/MT | +1.12% |
| NPK 16-16-16 | $460/MT | -0.28% |
| Nat Gas TTF | $15.42/MMBtu | +0.92% |
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