EVENTS in the Middle East following Saturday morning’s missile strikes on Iran will have “profound consequences” for the UK economy if inflation rises, experts have warned.
One cautioned the country is at risk from a “war premium on energy markets” that could result in “stagflation” and see base rate cuts delayed, to the dismay of borrowers.
The US and Israel both attacked Iran over the weekend, killing Supreme Leader, Ayatollah Ali Khamenei, and resulting in counter-strikes from Iran on several US allies in the Gulf, as well as vessels travelling through the oil-critical Strait of Hormuz.
Experts have warned the strikes could leave the Bank of England’s inflation forecasts in tatters, prove stagflationary for the economy and said gold and silver could spike – with $6k per ounce gold now very much on the table given the “classic risk-off scenario”.
The price of gold already rose above $5400 in early trading, while silver was once again edging closer to $100.
With several tankers passing through the Strait of Hormuz having already been struck by drones and missiles, Danish shipping giant, Maersk, like many others, has suspended all vessel crossings in the Strait of Hormuz until further notice.
Maersk has also paused Trans Suez sailings through the Bab el-Mandeb Strait for the time being and is sending its vessels around the Cape of Good Hope.
As a result, Brent crude was up almost 10% to $80 in early Monday trade, with prices at the pumps predicted to rise if the spike continues, potentially derailing the Bank of England’s inflation predictions.
Markets pricing in inflation could push up swaps, experts say, meaning many mortgage holders will have to pay more as interest rates stay higher for longer.
The weekend’s events follow an already turbulent week triggered by Donald Trump’s tariffs.
Profound consequences
Tony Redondo, Founder at Newquay-based Cosmos Currency Exchange, warned ongoing events in the Middle East could have serious consequences for the UK economy, driving up prices at the pumps and fuelling inflation.
He said: “The current situation in the Middle East has triggered a significant war premium on global energy markets, driving Brent crude toward $80, with intraday spikes hitting $82. This war premium is being fuelled by Maersk and other giants rerouting vessels away from the Strait of Hormuz and Suez Canal.
“If these transit points remain blocked, Brent could breach $100, potentially pushing UK petrol prices from the 138p-142p per litre last month towards 155p and diesel above 162p per litre. In a worst-case scenario involving sustained regional war, prices could mirror the 2022 crisis, exceeding $120 per barrel.
“The one silver lining is that global oil inventories are currently higher than they were in 2022, which may provide a temporary cushion, but market volatility will remain high.”
Redondo continued: “The Dollar should surge, potentially pushing Sterling down toward $1.30 as investors exit riskier assets. Gold will climb further and $6,000 becomes a realistic target within weeks.
“For the UK, a sustained oil price spike threatens stagflation, likely derailing the Bank of England’s inflation forecasts and forcing a pause on rate cuts.
“Expect interest rate swaps to jump on Monday as markets price in higher-for-longer inflation, prompting lenders to pull or reprice mortgage products upward.”
$6k gold possible
Samuel Mather-Holgate, Managing Director & IFA at Swindon-based Mather and Murray Financial, said fuel prices in the UK could skyrocket, as could the price of gold.
He said: “Expect the dollar to weaken further, markets to plummet and the oil price to soar. Fuel prices in the UK could hit £2 per litre if this is a protracted war.
“If you’re holding gold, it looks likely that the yellow metal’s phenomenal rally will continue despite its mega-high price per ounce. $6k gold is suddenly looking very achievable.”
Cameron Parry, CEO at physical gold savings account, TallyMoney, agreed: “Both the oil and gold price were up Monday morning, as the Strait of Hormuz and safe haven assets became the point of focus for markets.
“Geopolitical crises like the one unfolding currently will invariably apply upward pressure on the gold price and that’s precisely what is happening this time round. We are in a classic risk-off scenario and gold is the classic go-to asset.”
Expect a turbulent week
Andrew Montlake, CEO at London-based Coreco, said Trump’s move was a blow to borrowers in the UK.
He added: “The impact of Saturday morning’s missile strikes on markets and the UK economy could be profound. Domestically, more rate cuts this year by the Bank of England were priced in but this now looks far less likely as a spike in the oil price could prove hugely inflationary.
“There is every chance swaps will head north on Monday, which will be a blow to borrowers. The UK economy, which so desperately needs a rate cut or two, may now have to wait longer. Expect a turbulent week ahead.”
Omer Mehmet, Managing Director at Welling-based Trinity Finance, said mortgage rates will potentially go up again now.
He continued: “Saturday’s strikes could bring to an end the recent decline in swap rates, which has resulted in cheaper mortgage pricing. This goes to show how quickly markets can turn and why nothing, in the financial world, is guaranteed.
“Borrowers hanging on for lower rates may now be disappointed. Expect a volatile week ahead in the markets.”
Steven Greenall, Mortgage and Protection Advisor at Rayleigh-based Protect & Lend, said: “The Bank of England’s inflation projections are now looking very exposed. If the oil price continues to spike, that could prove inflationary, which could see the recent fall in swaps rates suddenly reversed.
“That could mean mortgage pricing rises once again, in a serious blow to borrowers and bricks and mortar just when the market looked to be gaining momentum.”
Borrowers hanging on for lower rates may now be disappointed
Justin Moy, Managing Director at Chelmsford-based EHF Mortgages, said mortgage rates will go up again.
He continued: “When we advise on the potential future pricing of mortgage rates, this is exactly the outside influence that cuts past inflation, unemployment and GDP figures, and can quickly and easily push up the cost of borrowing and spike inflation with potential for oil price increases.
“It would not surprise anyone if we do see rate increases in the short term, as banks run to the relative safety of gold and silver, whilst this conflict continues to alert the rest of the world.”
Riz Malik, Director at Southend-on-Sea-based R3 Wealth, said the strikes were organised during Ramadan to cause further tension.
He added: “An attack during Ramadan is going to do nothing to help regional stability in the Middle East. It’s understandable why the strikes were launched when the markets were closed because there is one thing markets don’t like and that’s uncertainty.
“A spike in energy prices is highly likely, potentially causing inflationary pressures that could unravel the Bank of England’s bullish forecasts. A rush to gold also looks inevitable, driving up the price, potentially significantly.”
Conflict will always make investors run for cover
Craig Fish, Director at London-based Lodestone Mortgages, said the weekend’s events are a good example of why you should lock in a mortgage rate before prices go up again.
He continued: “Events like this are a reminder that mortgage rates don’t move in isolation. If geopolitical tension pushes oil prices higher, inflation could rise again and that creates every chance that swap rates will increase, which feeds directly into mortgage pricing.
“Markets can reprice very quickly when uncertainty appears, and lenders react just as fast. This is exactly why borrowers should never choose a mortgage purely to try and ‘beat the market’ or second-guess rate movements. The right approach is to focus on your own circumstances, affordability and long-term plans, not short-term market speculation.”
Philly Ponniah, Chartered Wealth Manager and Financial Coach at Philly Financial, said inflation could now go up again.
She added: “For the Bank of England, an oil spike creates an immediate policy dilemma. Higher fuel and transport costs feed into headline inflation quickly, making forecasts harder to manage and potentially pushing rate cuts further out, which keeps borrowing costs elevated for households and businesses.”
Simon Bridgland, Broker at Canterbury-based Charwin Private Clients, said the price of gold and silver will go up.
He continued: “Conflict will always make investors run for cover to the solid bunker of precious metals such as gold and silver, and prices that were already marching north on Friday now look set to soar. But for the average person on civvy street, with energy bills to pay, fuel to pump and mortgage payments to cover, this becomes a financial pain not gain.
“This week swap rates look set to rise as markets price in a different rate outlook and lenders become more cautious and charge a higher premium. The only unknown is by how much.”
