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The Bank of England may respond more aggressively than expected to soaring energy prices after the Middle East war because its internal models assume a large, long-lasting impact on inflation. This raises the risk of faster or larger-than-anticipated rate hikes, putting upward pressure on gilt yields and sterling and tightening financial conditions for UK-sensitive assets.

Analysis

The Bank of England may respond more aggressively than expected to soaring energy prices after the Middle East war because its internal models assume a large, long-lasting impact on inflation. This raises the risk of faster or larger-than-anticipated rate hikes, putting upward pressure on gilt yields and sterling and tightening financial conditions for UK-sensitive assets.