Higher Borrowing Costs May Last Longer

Central banks are tightening their grip on interest rates in response to an energy-led inflation shock. The latest move came last week, when both the US Federal Reserve and the European Central Bank raised rates by a quarter of a percentage point.

The UK's Bank of England took a more cautious approach, leaving rates unchanged at its recent meeting, but one third of members voted for an immediate increase to 4%.

According to Andrew Mann from JM Finn, investors should prepare for a prolonged period of higher borrowing costs and the possibility of further rate increases. This is because policymakers expect the current energy shock to push prices higher still in the coming months.

The risk is that elevated energy costs become embedded in the wider economy, feeding through into wage demands, services, and broader consumer prices.