Money markets predict three quarter-point rises in UK interest rates this year, due to inflation shock from higher oil and gas prices
This morning’s surprise jump in UK borrowing to over £14bn in February means a renewed focus on whether the government has the fiscal space for a new cost-of-living support package, if energy prices remain high.
Thomas Pugh, chief economist at audit, tax and consulting firm RSM UK has said the jump “highlights the precarious fiscal position the UK is in”, warning that the Iran war will put further strain on the public finances.
“While widespread government support on the scale of the last crisis looks unlikely, and probably unnecessary unless energy prices rise further, the scheduled rise in fuel duty now seems in doubt. More importantly, if maintained through to the autumn, the surge in inflation, gilt yields and likely further rise in the unemployment rate could easily halve the Chancellor’s fiscal headroom.
Overall the figures are not quite as disappointing as the headline suggests. Even so the public finances face a number of challenges arising from the war in the Middle East, as a combination higher inflation and the rise in gilt yields raises financing costs. Moreover any energy relief packages to households and business would also increase borrowing, albeit perhaps for a limited period.
“Swap rates, which underpin mortgage pricing, have risen sharply following the decision to hold the base rate at 3.75%, with markets interpreting commentary from the Bank of England as leaving the door open to rate rises amid ‘Trumpflation’ fears. With two- and five-year swaps now sitting at their highest level in more than a year, lenders are once again facing higher funding costs, and this will feed through into mortgage pricing.
“Moneyfacts analysis of more than 30 years of historic rates data shows mortgage rates have historically averaged around 1.5 percentage points above Base Rate. If markets continue to price in one or two rate rises, this could see average new mortgage rates stabilise at around 5.50% to 5.75%. That would leave borrowers paying £1,000 to £1,500 more per year on a typical £250,000 mortgage compared to just a few weeks ago.
Continue reading...Why This Matters
The FTSE 100 has lost all its 2026 gains due to the escalating Middle East conflict, causing shares to plummet and UK borrowing costs to reach their highest since 2008. This economic downturn has significant implications for the UK economy, with household energy bills potentially rising to almost £2,000 a year. The situation demands attention from policymakers and investors alike.
In Week 12 2026, Economy accounted for 52 related article(s), with Other setting the broader headline context. Coverage of Economy increased by 41 article(s) versus the prior week, signaling growing editorial attention.
Coverage Snapshot
Week 12 2026 included 52 Economy article(s). Leading outlets for this topic included NY Times Business, CNBC, Independent Business. Across that cluster, sentiment showed a mostly neutral skew (avg score 0.00).
Key Insights
Tone & Sentiment
The article tone is classified as neutral, driven by the language and emphasis in the summary. The sentiment score of -0.09 indicates the strength of that tone.
Context
The current economic trend is marked by rising inflation, driven by higher oil and gas prices, and increased borrowing costs. Media outlets, including The Guardian, have highlighted the potential consequences of the Iran war on the UK economy, including a renewed focus on the government's fiscal space for a new cost-of-living support package. The Guardian has also reported on the surprise jump in UK borrowing to over £14bn in February, sparking concerns about the public finances.
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Key Takeaway
In short, this article underscores key movement in Economy and explains why it matters now.