Faisal Islam: Bank of England is trying to manage expectations

The Bank of England's minutes and Governor Andrew Bailey signal rising uncertainty from the Middle East shock, with rate cuts off the table and a rate rise increasingly likely. Markets are pricing a June/July hike and pushing up longer-term UK rates already, feeding through to fixed mortgage pricing. The Bank warned that if oil holds near a recent $125/barrel peak for months, policy rates might need to exceed 5% this year. That scenario, and recent volatility, would lift government borrowing costs and raise average mortgage payments (the Bank cites an expected rise of about £80 a month for many households). Sterling’s relative strength suggests much of the move is driven by the conflict rather than a uniquely UK problem, but households and businesses should prepare for higher borrowing costs if the Gulf impasse persists.