What will the Middle East conflict do to interest rates?

The pound fell sharply yesterday after Andrew Bailey, the governor of the Bank of England, said in a newspaper interview that the Bank could become “a bit more aggressive” in cutting interest rates if inflation remains subdued.

- JOHN RENTOUL

He said “the economy has come through the shocks of the last five years better than many of us feared”, but warned that the Bank was watching the Middle East “extremely closely” to see what effect the conflict might have on the price of oil.

Oil prices have risen in recent days in response to the news of Israeli action against Hezbollah in Lebanon, and of Iran’s ballistic missile attack on northern Israel, but Bailey said: “My sense from all the conversations I have with counterparts in the region is that there is, for the moment, a strong commitment to keep the market stable.”

So will interest rates go down?

The Bank of England base rate is 5 per cent, having been cut on 1 August from 5.25 per cent, at which level it had been for a year. Homeowners with mortgages are keen to see the rate come down further, even if they recognise that the years of ultra-low interest rates, which lasted from the financial crisis in 2008 until the end of 2021, are now over.