Bank deputy says rate rise ‘increasingly likely’ if energy prices stay high

Chris Cheverall, head of UK at CMC Markets, insists a Bank of England interest rate rise could hurt the UK economy.

He said: “The important point for markets is that a rate rise driven by higher energy prices would look very different from one driven by stronger domestic demand.

“If the Bank is forced to tighten because energy costs are feeding more broadly into inflation, it could be raising rates at a time when UK growth is already relatively subdued.

“That would leave households and businesses dealing with both higher costs and tighter borrowing conditions.

“Sterling could initially benefit if expectations for further rate rises build, but the reaction may not be straightforward. If investors start to worry that tighter policy will weigh more heavily on UK growth, that could limit some of the support from higher rates.

“You can already see some of that tension in the UK market. Higher oil prices are supporting index heavyweights such as BP and Shell and helping the FTSE 100 remain relatively resilient, while defensive stocks are also attracting demand.

“At the same time, higher bond yields are putting pressure on banks, financials and property-related names, which are much more exposed to tighter financial conditions.”