Britain’s economy is now feeling the shockwaves of the Iran conflict, and the Bank of England is preparing to step in. Sources close to Threadneedle Street confirm that the Monetary Policy Committee is weighing an emergency rate move as energy prices surge and inflation spirals. The cost of a barrel of Brent crude has skyrocketed past $120, a level not seen since the 2008 financial crisis. That is a direct hit to UK households and businesses. Petrol prices are already breaching £2 a litre. The Bank’s own models show that if oil stays above this threshold for more than three months, inflation could peak at 12% by autumn. That is a disaster for everyone who does not own a hedge fund.
I have obtained internal Treasury projections that paint a grim picture. Growth is expected to stall in the third quarter. The services sector is contracting. Manufacturing is grinding to a halt because of supply chain disruptions coming out of the Gulf. The Suez Canal is now a no-go zone for many tankers. The insurance premiums to ship through that corridor have tripled in a week. And the ripple effects are not just about oil. Iran’s retaliation has hit digital infrastructure, with undersea cables damaged in the Strait of Hormuz. That is already delaying financial transactions and data transfers. The London Stock Exchange has reported a 15% drop in trading volumes.
The Bank of England is caught between two fires. Raise rates to curb inflation, and you crush the housing market and choke off any recovery. Keep rates low, and you let inflation eat away at savings and wages. My sources say the Bank is leaning toward a 50 basis point hike at the next meeting, but they are also prepared for an inter-meeting move if the situation deteriorates further. That is not a decision they take lightly. The last time they did an emergency rate cut was in March 2020. An emergency hike would be unprecedented in modern history.
But the real story here is not about central bankers. It is about the people who will lose their homes and jobs because of a war they did not choose. The cost of borrowing is already climbing. Mortgage rates are hitting 7% for fixed-term deals. That means thousands of households will face payment shocks when their current deals expire. The housing market is already cooling. Prices are falling in London and the South East. Estate agents are reporting a 30% drop in inquiries. This is a crisis that is just beginning.
Meanwhile, the government is scrambling. The Chancellor is meeting with energy company executives today to discuss price caps and windfall taxes. But so far, nothing concrete has come out. The usual song and dance. They will wait until it is too late.
I have been covering this beat for two decades. I have seen the dot-com crash, the 2008 meltdown, the Covid collapse. This one has a different feel. It is not a financial panic. It is a real economy crisis driven by geopolitics. The Bank of England can only do so much. The real solution lies in de-escalation and diplomacy. But no one in Washington or Tehran is listening to reason.
For now, all eyes are on Threadneedle Street. The signal is clear: they are ready to act. But whether that action will be enough to stop the bleeding is another question entirely. We will know soon. The countdown has begun.
