Key facts
- Investors view ill-judged government policy and inflation as the main barriers to UK economic growth.
- The Bank of England anticipates a potential 24% increase in the energy price cap in January.
- The Bank of England has signaled a likely interest rate hike in November.
- Markets expect the Bank of England to raise interest rates four times in the next 12 months.
- The US-Israeli war on Iran is contributing to higher global oil prices, impacting UK energy bills.
Investors are concerned that ill-judged government policy and persistent inflation pose the greatest threats to UK economic growth. The ongoing US-Israeli conflict in Iran is contributing to elevated global oil prices, which in turn are expected to drive up UK mortgage rates and energy bills.
Ofgem, the energy regulator for Great Britain, is expected to increase the energy price cap by approximately 24% in January, based on recent energy futures market pricing. This comes as the Bank of England signals that it may need to raise interest rates further if high energy prices continue to feed into broader inflation. Governor Andrew Bailey stated that maintaining a stance of holding rates steady becomes more difficult the longer high energy prices persist.
Markets are anticipating as many as four interest rate hikes by the Bank of England over the next 12 months, potentially bringing the benchmark rate to 4.75%. Policymakers are also considering the impact of a powerful El Niño weather system, which could drive up food prices.
While Andy Burnham has introduced measures such as a £2 bus fare cap and is planning a new help-to-buy scheme, these initiatives risk being overshadowed by the broader economic challenges. The government is hesitant to announce large new support packages due to the cumulative cost of previous interventions, including £2.3 billion spent on lowering energy bills and a VAT cut on domestic electricity.