The impact of the conflict on oil prices and the possibility of an inflation shock have led the markets to predict the Bank of England’s Monetary Policy Committee (MPC) will raise the base rate four times this year.
Russ Mould, investment director at AJ Bell, said: “The 10-year gilt yield went back above 5%, having last week touched this level for the first time since the global financial crisis. This is the market’s way of saying the outlook for UK interest rates has radically changed.
“Three weeks ago, the market expected two rate cuts in the UK this year. We’re now looking at a situation where rates could be hiked four times by the end of 2026, according to market probability data. That has significant consequences for consumer and business spending, for the UK economy, and for public finances as the government’s cost of servicing debt would go up and tighten fiscal headroom.”
Jonathan Raymond, investment manager at Quilter Cheviot, said the UK and Europe’s reliance on imported energy made them appear “more exposed” to market volatility, which was now feeding into weaker consumer spending and softer growth.
Derren Nathan, head of equity research at Hargreaves Lansdown, added that Wednesday’s inflation data for February would be a “key data point for rate setters and markets”.
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He said: “The numbers predate the recent oil shock and forecasts, but comments by the Bank of England suggest that continued high services inflation is likely to keep the number close to January’s 3% read-out.
“Easier comparisons and the fiscal tightening seen in the 2025 Budget had been expected to see second quarter CPI inflation fall towards 2.1%, but higher fuel prices are now expected to see the average of the next three months stay at around 3%.”
Lenders tweak deals as market moves
More lenders announced changes to their mortgage ranges, including TSB announcing it would increase pricing on 25 March.
The changes will impact TSB’s product transfer and additional borrowing rates, with hikes of up to 0.2%.
Across its product transfer range, residential two- and three-year fixed rates will go up by up to 0.2%, while five-year fixes will be increased by as much as 0.1%.
Two-year fixed buy-to-let (BTL) product transfer rates will increase by 0.1% up to 75% loan to value (LTV) and five-year fixes with a £995 fee up to 60% LTV by 0.05%.
All residential additional borrowing fixed rates will rise by up to 0.2% and two-year BTL fixed rates by 0.1%.
Further, The Co-operative Bank will remove selected products at 5pm on 23 March and release updated products tomorrow.
Coventry Building Society will remove its products on 24 March and introduce higher fixed rates for existing residential and BTL borrowers.
Perenna also announced rate increases across its entire range, effective from 5pm on 23 March.
Nick Mendes, mortgage technical manager at John Charcol, said: “A sharp repricing in expectations for further bank rate rises has already pushed swap rates higher, and that is now feeding directly into mortgage pricing.
“The latest SONIA swap rates show the move clearly, with two-year money at 4.483%, three-year at 4.420% and five-year at 4.346%. That matters for mortgages because lenders price fixed rates off future funding costs, not simply where bank bate sits today.”
Mendes added: “Coventry for Intermediaries has pulled all new customer residential and buy-to-let deals and has yet to relaunch them, while Aldermore, Metro, Gen H, TSB, Nottingham, Leeds, Shawbrook and Principality have all either raised rates, withdrawn products, or repriced parts of their range. That is usually the clearest sign that higher funding costs are starting to bite.”
Mendes said the immediate impact would be on fixed mortgage rates and there would be more short-notice withdrawals as lenders keep pace with the fast-moving markets, adding: “Mortgage pricing does not wait for the Bank of England to come to fruition. If markets keep pricing in higher rates from here, lenders are likely to continue repricing in advance.”
Mendes said it was understandable to compare the recent disruption with the upheaval caused by the mini Budget, but the causes were different, and this time, the pressure was coming from a “sharp shift in rate expectations, higher swap pricing, and concern that policy may need to stay tighter for longer”.
He added: “That does not automatically mean a return to those peak mortgage rates, but it does raise the risk of further upward moves in the near term.”
Halifax, Nationwide, BM Solutions, Accord Mortgages and Pepper Money have also announced rate increases for this week, while Market Harborough Building Society has pulled its range with plans to relaunch updated products later in the week.
