With the crisis in the Middle East showing no signs of abating any time soon things are moving quickly in the markets and, on the back of today’s moves, I reckon that fixed rates will be going up very, very soon.
Oil prices continued to climb. US oil rose to around $77 per barrel, its highest level since January 2025, after jumping more than 6% in the previous session.
The growing conflict with Iran is disrupting fuel shipments and heightening fears that oil and gas supplies from the Middle East could be hit even harder. Sustained energy price rises feed directly into inflation expectations.
BOND MARKETS
Meanwhile UK government bond yields have also moved sharply higher.
The 10-year gilt yield rose to 4.53%, up more than 20bps on the day, as investors scaled back expectations of a Bank of England rate cut in March. Higher oil prices risk keeping inflation elevated, making near-term rate cuts less likely.
The 2-year gilt yield climbed above 3.8%, its highest level since late December and is on track for its biggest one-day rise since April 2025.
Rising energy costs have increased concerns about global inflation, prompting markets to reassess the likelihood of interest rate cuts from major central banks.
INTEREST RATES
Markets now see just a 22% chance of a Bank of England rate cut in March, down sharply from 83% only last week.
It’s also worth noting that gilt yields globally are seeing similar rises – the UK is not alone in this repricing.
There has also been a market reaction to Rachel Reeves’ Spring Statement.
While largely uneventful, it included lower growth forecasts. The OBR cut its UK growth forecast for 2026 to 1.1%, down from 1.4% in November.
That projection does not yet fully factor in potential energy shocks, which could be significant.
Growth forecasts for 2027 and 2028 were raised slightly to 1.6% for both years.
The OBR also predicted lower government borrowing and weaker inflation, although those forecasts could quickly become outdated if the Middle East conflict escalates into a prolonged crisis.
FIXED RATES REPRICED UPWARDS
Elsewhere Swap rates have moved sharply higher as well. As at 12 noon today: 1-year swaps were up 12.4bps, 2-year up 16bps and 5-year up 14.9bps.
In my opinion lenders will not be able to absorb this indefinitely.
As cheaper funding runs out, fixed rates will be repriced upwards.
My advice to brokers? If you have product transfers or pipeline cases waiting on client decisions, they should be encouraged to act sooner rather than later.
