Gas prices soar as Shell plant damaged in attack on Qatar energy site

Dan Coatsworth, head of markets at AJ Bell, said: “The Fed and Bank of England are in a state of limbo while they wait to see if the Middle East crisis will trigger a long-lasting inflation shock.

“There was no change to US rates last night and the Bank of England may also sit on its hands today. There simply isn’t enough data to make an informed decision on whether to put up rates to deal with the likely aftershock of the Middle East crisis – namely, a new inflation spike.

“The Bank of England has form in saying it is guided by data, and it’s too early to say if the $100 oil price observed in recent weeks has already fed into the economy and labour market. Latest figures show UK unemployment staying at a post-pandemic high of 5.2%, but the data period is only up to January which is before the Middle East conflict kicked off.

“The risk of an inflation shock has escalated after oil hit $115 per barrel after strikes on energy infrastructure.

“Financial markets were firmly in the red as investors reacted to the Middle East conflict intensifying, with stocks down across Asia and Europe.

“Gold also fell, which suggests investors are once again liquidating assets that have previously served them well, or they are reacting to a further strengthening in the US dollar. Gold often declines when the US dollar appreciates as the metal becomes more expensive for buyers of other currencies.

“Economically sensitive stocks were among the biggest fallers on the UK stock market, including banks and miners. An inflation spike threatens to cause economic damage and that clouds the earnings outlook for lenders and commodity producers.

“That’s a worst-case scenario and it’s important to consider that a quick resolution to the conflict could lead to a small scratch rather than a deep cut for corporate earnings. What’s annoying investors is the ongoing uncertainty – it’s impossible to make a call on what will happen next, so markets are taking it one day at a time.”