The surge in oil and gas prices has dented hopes of further interest rate cuts, delivering a bruising setback for millions of borrowers.
Investors aggressively trimmed bets on another rate cut this month as soaring energy costs stoked fears of inflation.
According to financial markets, there is just a 50 per cent chance of a UK rate cut from 3.75 per cent to 3.5 per cent when the Bank of England’s monetary policy committee (MPC) announces its next decision on March 19.
The odds stood at 80 per cent last week.
Borrowing costs spiked higher as the chances of further rate cuts fell, with the ten-year gilt yield heading towards 4.4 per cent.
Higher borrowing costs will be a blow to millions of households and businesses hoping for cheaper mortgages and loans.
Inflation fears: According to financial markets, there is just a 50% chance of a UK rate cut when the Bank of England announces its next decision on March 19
The rise in the gilt yield is a headache for Chancellor Rachel Reeves, too, as she delivers her Spring Statement.
The prospect of interest rates remaining high will fuel fears over the strength of the housing market.
Bank of England data showed just 59,999 mortgages were approved for house purchase in January, down from 61,007 in December – the lowest for two years.
House prices rose by 0.3 per cent in February, separate figures from Nationwide claim, with a typical home now costing £273,176.
Simon Gammon, at Knight Frank Finance, said the fall in mortgage lending ‘reflected the economic uncertainty that lingered after the November budget’.
Join the debate
Do YOU believe the Reserve Bank should still cut rates despite global tensions?
DIY INVESTING PLATFORMS
AJ Bell
AJ Bell
Easy investing and ready-made portfolios
Hargreaves Lansdown
Hargreaves Lansdown
Free fund dealing and investment ideas
interactive investor
interactive investor
Flat-fee investing from £4.99 per month
Freetrade
Freetrade
Investing Isa now free on basic plan
Trading 212
Trading 212
Free share dealing and no account fee
Affiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.
Compare the best investing account for you