Market News

Britain’s borrowing costs are surging as economists warned Britain is particularly exposed to an inflation crisis from the war in Iran.

The yield on 10-year gilts – a benchmark for the cost of servicing the national debt – rose 10 basis points on Thursday.

UK borrowing costs are now at their highest level since February 9, when bond markets reacted to speculation over the future of Sir Keir Starmer’s leadership. It puts them on course for the steepest weekly rise since since May 2023, when traders questioned the Bank of England’s ability to keep a lid on inflation.

It came amid a fresh stock market sell off in London and on Wall Street, with the FTSE 100 closing 1.45pc lower.

Investors are rattled by escalating conflict in the Middle East, fearing the war will strangle energy supplies and push up prices.

Ed Miliband admitted that British households were “exposed” to rising global energy prices after the Iran conflict hit oil and gas supplies.

The Energy Secretary said the country had been left at the mercy of international energy markets after a dramatic drop-off in traffic through the vital Strait of Hormuz.

Around a fifth of the world’s oil and gas passes through the trade route, which has been effectively closed after attacks on tankers.

Mr Miliband told MPs on Thursday that tanker movements had “declined very significantly” through the vital waterway after Iran targeted energy production and infrastructure.

He said that “as when Russia invaded Ukraine, we will be exposed to price competition” when the next Ofgem price cap is calculated from July.

Oil prices jumped as the war in Iran entered its sixth day. A barrel of Brent crude, the international standard, rose 3.8pc to $84.52, up from around $70 last week.

Michael Saunders, a former Bank of England rate setter, warned that Britain was particularly vulnerable to an energy shock because of its reliance on imports.

Mr Saunders said inflation was likely to remain higher for longer, warning that it could be closer to 3pc than the Bank’s 2pc target by the end of the year.

Mr Saunders said he expected any “sustained energy price surge” to prompt the government to step in to help pay household energy bills given that “the government’s popularity is low and its political strategy is heavily focused on ‘cost of living’ issues.”

Mr Miliband also hinted the government would consider financial support for households if needed.

Stressing that the impact on households would “depend on the length of time for which this crisis lasts”, he added: “As we continue to monitor the effects of these events, the House and the country should be in no doubt that the Prime Minister’s number one priority is to tackle the cost of living crisis that affects families across Britain, however long this crisis lasts.”