UK Policymakers Face Pressure as Oil Prices Soar Again
Oil prices have surged again, causing headaches for UK policymakers ahead of next month's budget. The price of Brent crude rose almost 5% to $108 on Thursday, following reports of military clashes between Saudi Arabia and Houthi forces.
The Treasury is working on possible options to support consumers, particularly if high prices persist, which could lead to a sharp rise in the quarterly energy price cap in January. However, any package will likely fall short of the costly subsidies announced by Liz Truss in 2022.
UK government figures are also concerned about interest rate rises, which could push up mortgage costs just as Labour has promised voters 'breathing space'. The Bank of England's chief economist, Clare Lombardelli, warned that higher energy prices persist, policy may need to tighten if inflation expectations and wage bargaining increase.
The global selloff in government bond markets is being driven by rising energy prices and expectations of higher inflation and interest rates. This has raised the cost of borrowing for the UK and other economies, with the yield on 10-year UK bonds approaching a 19-year high of 5.39%.