Oil and gas markets moved higher on Tuesday after fresh escalation in the Middle East, with traders reacting to renewed attacks and the US reimposing a naval blockade on Iran. Brent crude climbed to its highest level in four weeks, rising $3.79 a barrel to $87.08, while West Texas Intermediate also advanced, touching $81.25 before easing slightly. According to the report, the latest moves reflected concern that supply disruptions could persist if the situation remains volatile.
The rise in energy prices quickly fed through to broader financial markets. European shares fell, and UK government borrowing costs increased as investors reconsidered the inflation outlook. The 10-year gilt yield climbed to 5.02%, its highest level since May, pushing up the cost of financing for the government and adding to pressure on the fiscal outlook.
Rate expectations shift as inflation worries return
Expectations for Bank of England policy also hardened. Traders fully priced in a quarter-point rate increase by September, reversing some of the recent easing in market bets. The shift came as officials and investors weighed the risk that higher oil prices could keep inflation elevated for longer than previously expected.
Bank of England governor Andrew Bailey said Britain’s banking system remains resilient, but he warned about the financial stability risks created by the renewed instability in the region. He told MPs that the ceasefire had always looked fragile and said the breakdown in peace talks and the return of attacks underlined those risks. Bailey also said the UK’s bigger economic problem remains slow growth, even as markets focus on the immediate implications of the conflict for prices, bonds and interest rates.
Source: theguardian.com
