Oil Price Surge Fuels Expectations for UK Interest Rate Hikes

The Bank of England is unlikely to raise interest rates this week due to recent inflation data and volatile events in the Gulf, but investors are pricing in two full interest rate increases by the end of the year.

Mortgage, loan, and savings rates offered to households and businesses have already reflected the rapid change in the economic backdrop, with retail banks not waiting for the Bank of England to move. Mortgage rates have risen to their highest in a month as inflationary risks have re-emerged, while the cost for the UK government to borrow for ten years has climbed to 5.1% - levels last seen before the Global Financial Crisis.

The world's largest debtor, the US government, is now paying an interest rate of 4.7% a year for its ten-year borrowing, which could be an embarrassment of riches for investors who can demand such returns due to high inflation coming and strong profits growth in the corporate sector.