Inflation Archives

United Kingdom Suffers Cost of Borrowing and Energy Shocks

Written by IntaCapital Swiss on March 25, 2026. Posted in News & Reports. Leave a Comment

The cost of borrowing for the UK government has soared to its highest level in eighteen years (when the global financial crisis 2007 – 2009 gripped the world) due to the economic shocks emanating from the US/Iran/Israel conflict. The Strait of Hormuz remains closed and 1/5 of the world’s crude oil remains in the ground, building fears of inflation shocks to many countries. In the United Kingdom, as of close of business on Friday 20^thMarch, 10-year Gilts yields (a benchmark for government long-term borrowing costs) rose by 0.76%, capping a 5.00% rise since the start of the war in the Middle East.

A Comparison with Global Markets

Experts suggest that the sell-off in UK government bonds is even more brutal than in 2022 when the previous Prime Minister Liz Truss introduced her mini-budget, which resulted in the UK government bond market taking a heavy beating. Analysts point to the fact the jump in the UK’s borrowing costs has not been matched in other economies, for example the corresponding rate on the 10-year German government Bund is only up 0.38% and in the United States the US treasury benchmark borrowing costs are up 0.41%.

The UK’s Energy Vulnerability

Analysts point to why the UK government bond market is having a much worse time than many of their counterparts, which is due to the economy being more vulnerable to oil and gas price rises than many of their peers. In 2024, data shows that 35% of the UK’s total energy consumption was made up of natural gas (Europe’s reliance on gas is now only circa 1/5^th of total energy consumption), which heats the vast majority of homes in the United Kingdom. This sadly reflects on the government once again not learning from the energy shock created by the invasion of Ukraine by Russia on 24^th February 2022. The UK is therefore much more vulnerable to imported inflation (America being fairly secure as a net exporter of LNG). Data released shows that UK 1-year inflation expectations have risen 1.8% since the US/Iran/Israel conflict began, a much bigger increase than their peers in the USA and the Eurozone.

Inflation and the Interest Rate Outlook

UK government bonds are highly sensitive to rising inflation; notably, 2-year gilt yields, which track Bank of England interest rate expectations, recently climbed to an over a year high of 5.35%. Brent Crude is currently trading at $106.77pbl with market expectations of the price going higher the longer the Strait of Hormuz remains closed, and money markets are now anticipating a rise in interest rates of 75 basis points this year. The energy shock is exacerbating the outlook on inflation and as the cost of borrowing rises, so will the effect on businesses and consumers in the United Kingdom. Already, costs of both diesel and petrol at the pumps have gone up, as have certain foods in the supermarkets.

The Impact on Households and Industry

Householders in the UK are already seeing mortgage deals pulled from the market, and as of July, this year consumers have been warned to expect a whopping 20% increase in energy bills. This increase could prove devastating for many households who are already struggling to pay their energy bills at today’s prices, especially alongside fuel and food price increases, making a very hard second half of 2026 for consumers. Elsewhere, in the airline industry, experts suggest that around the top 20 quoted airlines have lost a combined total of $54 billion in market value. The price of an airline ticket is also about to go through the roof due to jet fuel more than doubling in price since the Middle East conflict began. Despite the tendency for official narratives to focus on external pressures, consumers continue to face the direct consequences of these price spikes as historical economic patterns repeat themselves.

The UK is at Risk of Inflation and Energy Spikes Due to the Iran Conflict

Written by IntaCapital Swiss on March 11, 2026. Posted in Iran, News & Reports. Leave a Comment

Rising Borrowing Costs and Market Volatility

The United Kingdom’s borrowing costs are going up with great rapidity as the country is exposed to a surge in inflation due to the current war in the Middle East between Iran, the United States and Israel. The potential inflation crisis has been reflected in the UK’s increased cost of borrowing as the benchmark 10-year Gilt* yield rose 10 basis points on Friday 6^th March.

*10-year Gilt (Government Bond) – Represents the yield/interest rate the government must pay to borrow money for ten years. It is referred to as the benchmark as it reflects investor sentiment on the health of the UK economy and future Bank of England policy decisions.

Energy Security and Domestic Policy Vulnerability

The UK’s Energy Secretary, Ed Miliband, said that after an extremely serious drop-off in tankers transiting the Strait of Hormuz, the country is now at the mercy of international energy markets.

The Iran crisis has exposed significant vulnerabilities in the Labour government’s energy strategy. By retreating from North Sea oil in favor of current green policies, the UK’s heavy reliance on imported fuel has been thrust into a harsh spotlight. Whilst the costs will not be seen by household bills immediately, the inevitability of upcoming increases will soon filter through leaving residents of the UK further out of pocket.

Impact on Petrol and Diesel Prices

At the pumps, diesel has surged to a 16-month high, rising by approximately 6p to 148p per litre, a level not seen since August 2024. Petrol prices followed suit, climbing by 4p to an average of 137p. For the average consumer, this translates to an additional £2.00 to fill a 55-litre petrol car, while diesel owners are facing an increase of roughly £3.30 per tank.

Shifting Expectations for Bank of England Policy

Elsewhere, analysts report a significant shift in expectations for the Bank of England’s March 19th policy meeting. While markets were previously almost certain of a 25-basis point cut, the ongoing conflict has prompted a major reprice, with holding interest rates now seen as the most likely outcome. Experts advise that due to the surge in energy prices, inflation could return to 3.5% later in the year, and if Brent Crude continues to increase (up circa 27% last week), the cost of living for consumers will continue to increase.

Will the UK’s Inflation Figures Strengthen the Bank of England’s Hawkish Bias?

Written by IntaCapital Swiss on May 28, 2025. Posted in News & Reports. Leave a Comment

The latest data released by the ONS (Office for National Statistics), shows the United Kingdom’s inflation rate, the CPI (Consumer Price Index), jumped to 3.5% from 2.6% in April of this year, driven mainly by increases in water, energy and other price increases. Service inflation was seen accelerating from 4.7% to 5.4% and is an area the Bank of England watches closely for signs of underlying price pressure, and Bank officials had expected this figure to be 5%. Elsewhere Core Inflation (does not include food and energy) climbed to 3.8% which is the highest it has been since April 2024. Earlier this month, the Bank of England’s MPC (Monetary Policy Meeting) voted on yet another rate cut where two members voted to hold rate cuts, and the above figures bear out their cautiousness.

The Bank of England’s target inflation figure is 2%, and the current rate of inflation is well above that target and furthermore, the Bank of England expected this figure to rise and peak at 3.7% in September of this year. Other data shows consumer prices rising by 1.2%, the biggest rise for 24 months. Consumers in April were hit with a number of increases such as volatile air fares (up 16.2% year on year), water bills, local authority taxes, train fares and an across-the-board basic cost increase, which added to a pretty damning April for the government. However, analysts have noted that the Easter holidays were probably responsible for the jump in airfares (biggest month-on-month jump for April on record) and expect this figure to diminish before the summer holidays begin.

Experts suggest the financial markets are in favour of an end of year interest rate of 4% for the first time since the end of March/early April. This sentiment translates into one more rate cut this year suggesting that the Bank of England’s MPC will slam the door shut on an interest rate cut at its next interest rate meeting on Thursday 19th June 2025, with traders cutting an August interest rate cut from 60% to 40%. Markets also remember comments from the Bank of England’s Chief economist, Hugh Pill, who voiced in a hawkish speech that he feared interest rates were not high enough to keep the lid on inflation, and analysts suggest that it would not take too much for the swing voters on the MPC to move into the hawk’s camp especially after what the Consumer Price Index had recently shown.

Indeed, Mr Pill voted against a rate cut of ¼ of 1% earlier in May where he also said, “In my view, that withdrawal of policy restrictions has been running a little too fast of late, given the progress achieved thus far with returning inflation to target on a lasting basis. I remain concerned about upside risks to the achievement of the inflation target”. We will wait on the MPC’s meeting in June but the likelihood according to experts is a rate hold, plus we will also wait and see if Donald Trump’s economic policies impact further the global economy with any fall-out influencing decisions taken by bank officials. Elsewhere in April, it has been revealed that government borrowing for the month was £10 Billion, with data confirming this figure to be a new record. All in all, not the best 30 days with newspapers dubbing the month as “Awful April”.

Will the United Kingdoms’ Interest Rates Fall Soon?

Written by IntaCapital Swiss on December 7, 2023. Posted in Uncategorized. Leave a Comment

The financial markets are betting that, despite the negative comments by the heads of the European Central Bank (ECB), the Federal Reserve and the Bank of England, interest rates will fall in the first three to six months of 2024. The loudest negative voice pouring cold water on interest rate cuts is the Governor of the Bank of England, Andrew Bailey.

With the United Kingdom economy flirting with recession and inflation falling below 5% everyone from the Prime Minister downwards to first-time home buyers are saying that interest rates must surely fall soon. Indeed, recent data released from the British Retail Consortium showed inflation dropping to 4.3% in November of this year (a drop of 0.9%), the lowest level since June 2022.

Despite the good news regarding inflation, after a visit to the North-East, the Governor of the Bank of England said interest rates will not be cut in the foreseeable future. On top of that he reiterated the same point that was made after the last MPC (Monetary Policy Committee) meeting, that it is too soon to have this conversation, which is the Bank of England speak for “go away”.

The 2% benchmark figure for inflation will not be reached until the end of 2025 as advised by the Bank of England itself. So, whilst the Prime Minister Rishi Sunak has met his political promise of halving inflation, from an economic standpoint it has little significance. Indeed, inflation has dropped from a high of 11.1% in October 2022 to 4.6% in October 2023, but Andrew Bailey has advised that halving it once again could be very difficult.

The Bank of England are quick to point out that much of the recent falls in the inflation figures are due to falls in Ofgem’s energy price cap, as the spikes caused by the war between Russia and Ukraine come out of the inflation figures. However, to do this again and again would surely be nigh on impossible or exceptionally difficult. The Governor also pointed out that to get to the 2% inflation target is a game of two unequal halves. He went on to say the second half is “hard work” with the remaining task being done by restrictive monetary policy. He further added that the drop in inflation by 2% from 6.7% in September to 4.6% in October, (due to the fall in the energy cap as mentioned above) will not be repeated again.

Interestingly, one highly respected financial institution has advised that their experts are now predicting a 50 basis point interest cut in the fourth quarter of 2024. They went on to say that with the loosening in the labour market interest rates may be reduced by the Bank of England earlier than predicted but expect the bulk monetary easing to take place throughout 2025 culminating in the 2% interest rate target. There are obviously differing views within the financial markets as to when interest rates will be cut, but for first time home buyers and those households struggling with bills and mortgage repayments, the sooner the better.

Tag: Inflation