2 hrs ago
UK households face higher borrowing costs and energy bills
Borrowing money in the UK is becoming more expensive because investors expect interest rates may rise.
This could increase payments for people with mortgages and other loans.
The government is also paying more to borrow money through its bonds.
At the same time, oil prices have risen, making petrol more expensive.
A forecast says a typical household energy bill could rise by 25% in January.
Higher energy and fuel prices could make many other goods more expensive too.
The Bank of England may raise interest rates to slow inflation.
However, higher rates could make life harder for families and businesses that are already facing bigger bills.
The yield on 30-year UK government bonds rose above 5.95%, its highest level since 1998.
Markets are pricing in as many as five Bank of England rate rises by November 2027, potentially taking the base rate from 3.75% to 5%.
Bloomberg Economics forecasts that a typical annual energy bill could rise by £427, or 25%, to about £2,150 in January.
Oil prices near $110 a barrel have pushed UK petrol prices to their highest level in four years and could lift inflation above 4% next year.
The Bank of England must weigh controlling inflation against putting more pressure on households and businesses through higher borrowing costs.
- Who
- UK households, the Bank of England, investors and the UK government are central to the story.
- What
- Borrowing costs and potentially household energy bills are expected to rise, while markets anticipate possible interest-rate increases.
- Where
- The main impact is in the United Kingdom, although bond yields are also rising in other major economies.
- When
- The bond-market moves occurred this week; the UK Budget is due on October 28, and the energy-bill increase is forecast for January.
- Why
- Investors are concerned about inflation, higher oil prices, energy costs and the outlook for the UK government's public finances.
Raise rates to contain inflation
Hold rates to limit household pressure
Response to rising prices
Raise rates to contain inflation
Higher interest rates could help prevent energy and oil-price increases from feeding into wider inflation.
Hold rates to limit household pressure
The Bank of England could wait for more evidence because higher rates may further weaken economic conditions.
Impact on households and businesses
Raise rates to contain inflation
Allowing inflation to remain elevated could increase everyday costs and undermine confidence in the UK's public finances.
Hold rates to limit household pressure
Additional rate rises could increase mortgage and other borrowing costs while households also face higher energy and fuel bills.
Key facts
- 30-year gilt yield
- Above 5.95%, the highest level since 1998.
- Potential base rate
- Markets see the Bank of England base rate potentially rising from 3.75% to 5% by November 2027.
- Energy-bill forecast
- A typical annual bill could rise by £427, or 25%, to around £2,150 in January.
- Oil price
- Oil prices have approached $110 a barrel.
- Inflation risk
- Higher energy costs could push UK inflation above 4% next year.
- Budget date
- The UK government's Budget is due on October 28.
- UK position among G7 economies
- The UK's 10-year government borrowing costs are higher than those of any other G7 economy.
Quotes
Anthony Brinkman
High yield portfolio manager at Principal Asset Management
“The UK is especially vulnerable because of the combination of oil prices at $100–110 a barrel and concerns about the credibility of the public finances ahead of the October 28 Budget.”
easterneye.biz
Susannah Streeter
Chief investment strategist at Wealth Club
“The bond markets are reflecting concerns that the only way is up, and the worries that the ascent could be a steep one.”
easterneye.biz
Sources
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