Rising oil prices may force Bank of England to lift rates, economists warn
City economists say a return of Brent crude above $100 a barrel could compel the Bank of England to revise its forecasts and raise interest rates later this year.
Economists in the City warn that a rebound of Brent crude above $100 a barrel could force the Bank of England to abandon its current outlook and increase borrowing costs before year-end. The central bank’s policy committee is slated to vote for a hold at 3.75% this week, reflecting a seven-to-two majority. However, the recent breakdown of a US-Iran ceasefire has lifted oil to $96-$100, reviving fears of a second energy shock that could push headline inflation higher.
Deutsche Bank’s Sanjay Raja and Nomura’s George Buckley both see the risk of one or two quarter-point hikes if oil stays elevated, while former IMF chief Mohamed El-Erian says sustained $90-plus prices would rewrite forecasts. Some commentators, such as Alpine Macro’s Harvinder Kalirai, expect the BoE to look through the shock and keep rates steady for now, but others, including Capital Economics’ Ruth Gregory, warn that inflation could climb to 7% and force rates to 4.75%. The broader central-bank community across Europe shares similar concerns about the impact of Middle-East tensions on energy prices and monetary policy.
Why it matters
Higher oil prices could raise UK borrowing costs, affecting mortgages, businesses and inflation.
How the sides frame it
LOW AGREEMENTLeft-leaning coverage stresses that rising oil prices could force the Bank of England to raise rates, while centrist coverage emphasizes the decision to keep rates unchanged and warns that inflation may rise because of volatile energy prices.
LEFT
Focuses on economists warning that high oil prices may compel the Bank of England to lift rates before year-end
CENTER
Reports the Bank of England’s decision to hold rates and warns that inflation could rise again due to the Middle-East conflict
The left emphasises
- a rebound of Brent crude above $100 a barrel could force the Bank of England to abandon its current outlook
- risk of one or two quarter-point hikes if oil stays elevated
- sustained $90-plus prices would rewrite forecasts
Possibly left out
- Left-leaning coverage reports risk of rate hikes from oil prices, absent from one outlet which reports the rate was held.
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