9 March 2026
If you are covering the news that the Bank of England may be forced to raise interest rates as a result of the Middle East conflict, please see the following comment from Jonathan Raymond, investment manager at Quilter Cheviot:
The sharp jump in oil prices has forced markets to rethink the idea that UK interest rates are on a smooth downward path. Only a few weeks ago the market was pricing a 95% chance of a cut in March; that probability is now closer to 2.5%. For investors and borrowers, the risk is that the Bank of England feels obliged to tighten policy again just as borrowers were expecting some relief.
A sustained move in Brent oil over $100 is effectively an inflationary tax. It raises costs for businesses, squeezes real incomes and risks keeping headline inflation above target for longer. If that persists, gilt yields and swap rates will remain under upward pressure, which is why we are already seeing mortgage pricing move higher before the Bank has done anything. The Bank is likely to initially look through the shock because it is energy driven, but if the Middle East situation deteriorates further the risk of policy tightening later in 2026 becomes harder to dismiss.
For long term investors, the key point is that markets are adjusting to a more volatile inflation backdrop. Crucially, the difference compared with 2022 is that the labour market is materially weaker. Companies simply do not have the same pricing power they did then, which limits how far higher input costs can be passed on. That puts a premium on businesses with strong balance sheets and reliable cashflow. It also reinforces the need for diversification, because concentrated positioning around rapid rate cuts now carries more risk. For those investing regularly, the discipline of staying invested is likely to be more valuable than trying to time short term policy swings, and volatility can still create opportunities to add to quality assets at more attractive valuations.
The bigger question is how persistent the oil shock becomes. It remains too early to expect the Bank to actively raise rates this year, but every day without progress on Iran increases the economic damage and the risk that higher energy prices feed more firmly into underlying inflation. That is why the market is starting to recognise that inflation is not yet last year’s problem.
