Today’s surge in oil and gas prices could push inflation up to 5%, if prices remain at these levels, predicts Thomas Pugh, chief economist at leading audit, tax and consulting firm RSM UK.

He points out that higher energy prices could cause ‘second round effects’ (ie, leading to higher wage and price setting), saying:

“We’ve seen another surge in oil and gas prices this morning as attacks on energy infrastructure in the Middle East escalate the economic risks.

“If prices of around $117pb for oil and 173p/therm are maintained, higher energy prices would push to a little above 4% by the end of the year. However, that likely understates the total impact as second-round effects would become more likely and larger if energy prices were still this high into the summer, which could realistically push inflation towards 5%. At that point, interest rate hikes become much more likely.

City traders are betting that the energy crisis will force the Bank of England to raise UK interest rates this year.

The money markets are now fully pricing in a quarter-point raise by July, which would take Bank rate back up to 4%.

We’ll get a feeling for the Bank’s view of the situation at noon today, when it is expected to leave interest rates on hold.

Gary Smith, head of EMEA client portfolio manager team, fixed income at Columbia Threadneedle Investments, says:

Prior to the conflict in the Middle East markets were primed to expect a March rate cut from the BoE, but this pricing has evaporated – and we agree that the BoE will likely stay on hold this week.

The Monetary Policy Committee will want to wait for more clarity on the potential inflationary impacts of rising energy costs – for now this overshadows any domestic political dynamics or economic data.

The Bank will need to judge the energy price shock as “persistent” in order to justify a monetary policy response and given the current highly uncertain nature of the geopolitical backdrop, it is unlikely that the Bank can determine the nature of the shock at this juncture – which leaves it in “wait and see” mode.

Major European airlines warned of rising fares if the surge in fuel prices stemming from the Iran conflict persists for months, Reuters reports.

They have urged passengers to book early to avoid extra costs as the industry’s fuel hedging strategies – which they use to protect themselves from rising energy prices – start to unwind.

Lufthansa Group Carsten Spohr, speaking alongside other airline leaders in Brussels, said it had added 40 flights to Asia to compensate for disruption to Gulf carriers but demand could be affected by higher fuel charges and fares.

Brent crude is now up 10% so far today at $118.11 a barrel, as the renewed attacks on energy infrastructure in the Middle East alarm investors.

Yesterday’s missile attacks on Qatar’s Ras Laffan Industrial City have “fundamentally” altered the global gas market outlook, energy consultancy Wood Mackenzie are warning this morning.

Wood Mackenzie are warning that initial expectations of a two-month disruption at the site are now likely to be exceeded.

An extended outage risks tightening global supply, raising prices, and delaying capacity growth through 2028, they warn.

Wood Mackenzie point out that Qatari LNG production has been halted since 2 March, which removed around 19% of global LNG supply from the market, or 80m tonnes per annum.

An expansion of its “North Field East” site, which would have added 32m tonnes per annum, now faces potential delays, Wood Mackenzie fear, which could “reshape supply growth expectations through 2027-2028.”

Before the attacks, Wood Mackenzie had forecast it would take four to six weeks to ramp up Qatari LNG production to full capacity.

Kristy Kramer, head of LNG strategy and market development atWood Mackenzie, warns:

“Market expectations had been for a short disruption, with a controlled restart restoring supply to pre-conflict levels by mid-2026. That outlook now appears increasingly unlikely.

“A more prolonged outage would further tighten the global supply and keep prices elevated for longer.”

Shell has confirmed that Wednesday’s attack on Qatar’s Ras Laffan Industrial City caused damage to the Pearl GTL (gas-to-liquids) facility.

Shell added the fire was quickly put out, there were no reported injuries and Pearl is now in a “safe state”, after Iran attacked the facility in retaliation for the attack on its South Pars gasfield.

Shell has a 100% interest in Pearl GTL in Qatar, which has capacity to process up to 1.6 billion cubic feet per day of wellhead gas, converting it into 140,000 bpd of gas-to-liquids, Reuters reports.

Sky News’s Ed Conway has warned that the attack on Ras Laffan could have serious consequences, potentially for years:

Two central banks just left interest rates on hold, even though the Middle East crisis is threatening to drive up inflation.

The Swiss National Bank has left its policy rate unchanged at 0%, and predicted that the rise in energy prices due to the escalation in the Middle East means inflation in Switzerland is likely to increase more strongly in the coming quarters.

The SNB warned traders it would intervene if necessary to keep the Swiss franc stable, saying:

Given the conflict in the Middle East, the SNB’s willingness to intervene in the foreign exchange market has increased. The SNB thereby counters a rapid and excessive appreciation of the Swiss franc, which would jeopardise price stability in Switzerland.

Sweden’s Riksbank has left its policy rate unchanged at 1.75%, cautioning that the war in the Middle East makes forecasting very uncertain.

The Riksbank said:

Recent international developments have been very dramatic. The war in the Middle East has caused major movements in energy prices and in financial markets, including a rise in short-term market interest rates. The US dollar has strengthened, including against the Swedish krona. It is still unclear what the more long-term consequences will be, in both geopolitical and economic terms, and conditions can change rapidly.

It’s a busy morning for BP as the crude prices surges higher.

The British energy major has announced the sale of its German oil refinery site in Gelsenkirchen to investment firm Klesch Group, and also raised its cost reduction target.

BP is now aiming for $6.5bn to $7.5bn of structural cost reductions by 2027, which equates to around 30 percent of bp’s 2023 cost baseline.

BP is also planning to shift its global headquarters to new offices in London by ​early 2028.

The new site – in London’s Southwark – will also ​house ‌technical and engineering staff currently based in its ⁠Sunbury campus, to the west of the capital.

BP told Reuters in a statement:

“We are taking steps to build a simpler, stronger ​and ‌more valuable bp, including bringing our teams and leaders closer together. This move will help us work smarter and faster, strengthen decision-making, and ​create more opportunities for meaningful in-person collaboration.”

European stock markets have dropped sharply at the start of trading, hit by worries about surging energy prices.

In London, the FTSE 100 blue-chip share index has tumbled by 162 points, or 1.6%, to 10,142 points.

Nearly every share on the index is down, led by miners and banks, with BP (+1.6%) a rare riser.

Susannah Streeter, chief investment strategist at Wealth Club, says “downbeat sentiment is spreading fast” as investors assess the repercussions for the global economy.

“Fears of a sustained energy shock have resurfaced after the escalation in the Iran war sent oil and gas prices soaring. The prospect of a longer, more drawn-out conflict is in sharp focus, as both sides ratchet up attacks on energy infrastructure.

Brent crude remains highly volatile but has traded as high as $114 a barrel today, threatening to climb back towards recent scorching levels. Gas prices have surged by 25%, reaching a range not seen since early January 2023.

This chart shows how UK gas prices have surged over 170p a therm today, as the Iran war has caused prices to more than double since late February.

That jump is likely to drive up household energy bills this summer, unless the Middle East conflict deescalates.

However, prices are still much lower than shortly after Russia’s invasion of Ukraine – when they briefly rose over 500p a therm.

This morning’s surge in oil and gas prices, and the slowdown in UK wage growth, are the main things to watch in the markets today, reports Kathleen Brooks, research director at XTB:

• Brent crude has hit $113 a barrel, one of its highest levels since the conflict began. The escalation in the conflict is spooking the market and futures markets are predicting hefty losses for stocks at the open, as risk sentiment sours. Oil is driving the bus in this market, and where it goes, risk sentiment will follow.

• Nat gas prices are surging once more and are higher by 30% after the attacks on Qatar’s Ras Laffan gas field. This has caused President Donald Trump to call on Israel and Iran to stop targeting energy sites. However, it will take a lot of positive sentiment and news flow to calm energy prices today.

• The UK labour market data was not as bad as feared, the unemployment rate remained steady at 5.2%, and the UK’s labour market was little changed at the start of the year.

• There are signs that businesses are hiring once more, the ONS has reported an increase of 6,000 payrolled workers in January and estimates a further 20,000 payrolled workers were added in February. The vacancy rate is stable, with declines in smaller firms offset by increases in jobs in larger firms. This suggests that the jobs outlook improved at the start of the year compared to the end of 2025.

• The big news is that UK wages retreated to their lowest level in 5 years, with pay growth slowing in both the private and public sectors. This is one bright spot in an otherwise weak outlook for UK inflation. Today’s data continues to support a BOE who is concerned about the outlook for growth. The Middle East conflict continues to dominate, and it will take a major deescalation at this stage to boost market sentiment and bring down energy prices.

UK wage growth has slowed to a five-year low, in a worrying sign for workers as the Middle East crisis pushes up energy costs.

Average pay (excluding bonuses) rose by 3.8% per annum in the three months to January, down from 4.1% in October-December 2025, the Office for National Statistics reports.

Annual growth in total pay (including bonuses) slowed to 3.9% in November-January, down from 4.2% a month earlier.

For both pay measures, this is the slowest growth since September to November 2020.

Today’s UK labour market report also shows the unemployment rate remained at a five-year high of 5.2%.

Luke Bartholomew, Deputy Chief Economist at Aberdeen, says:

“With unemployment staying steady at 5.2% and a rare gain in payrolls employment, this report paints a mildly more positive picture of the labour market. And with wage growth softer again, in normal times this would have been a relatively reassuring report for the Bank of England.

But the report feels stale in light of the Iran conflict, and the inflation risks stemming from the large spike in energy prices. So while today’s Bank of England meeting had once looked like the likely point of the next rate cut, instead policy is set to be kept on hold today as policymakers give themselves more time to see how the conflict plays out.

Negative supply shocks are difficult for central banks to navigate as they push up on inflation and down on growth at the same time. The dilemma is especially acute for the BoE right now as UK growth was already weak and inflation expectations were also less well anchored. So while we think the hurdle to returning to rate hikes is very high, further rate cuts may be significantly delayed.”

European gas prices are surging this morning, after Iran stepped up attacks on energy facilities across the Middle East.

The month-ahead UK wholesale gas price has jumped by 25.5% this morning to 175p a therm, its highest level since August 2022, Reuters points out.

[see later post for key charts]

The continental gas price has rocketed too. The “front-month Dutch wholesale gas price” is up over 31% at €71.7 per Megawatt hour, its highest since the end of December 2022.

Traders are reacting to yesterday’s escalation in the Middle East, where Iran attacked the world’s largest liquefied natural gas facility in Qatar after Israel’s attack on its South Pars gasfield, the world’s largest.

In response, Donald Trump has threatened to “massively blow up” South Pars completely if Iran attacks Qatar again:

The oil price is rising rapidly again today, adding to the headache facing central bankers.

Brent crude is up 5.9% at $113.76 a barrel, as tensions escalate in the Middle East.

Israel’s attack on Iran’s giant South Pars gasfield yesterday has shown that the war has escalated, with Iran’s Revolutionary Guards threatening to target oil and gas facilities across the region in response.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

The world’s central bankers are facing a conundrum right now. With the Middle East crisis pushing up energy prices, inflation risks lingering, and economies looking weak, should they cut borrowing costs to support growth or raise them to subdue prices?

Rather than make a choice yet, there’s a strong temptation to wait and see.

And that’s why the Bank of England is expected to leave interest rates on hold at noon, after its latest monetary policy committee meeting.

Before the Iran conflict started, an interest rate cut today was seen as an 80% chance by the money markets. But now, with oil over $100 a barrel, the markets indicate there’s a 97% chance that the BoE leaves interest rates on hold at 3.75% today.

Ajith Nair, CIO of Isio Investment Management, explains:

“Expectations for UK interest rates have shifted materially in recent weeks, with markets now anticipating that the Bank of England will hold rates in March, keeping rates at 3.75%, despite previously pricing in a cut.

The primary driver has been the rise in oil and gas prices linked to the Iran conflict, which has pushed inflation risks higher. This creates a difficult backdrop for both policymakers and investors. In fixed income markets, UK government bonds have already come under pressure at times, with yields rising as rate‑cut expectations have been pared back and, more recently, partly restored. Shorter‑dated bonds are now reflecting a more uncertain path for policy rather than a straightforward easing cycle.

The European Central Bank is also expected to leave interest rates on hold today.

The Bank of Japan has got the ball rolling overnight, by leaving its lending rates unchanged, as the Bank of Canada did yesterday.

Last night, the Federal Reserve left US interest rates on hold, and warned that the “implications of developments in the Middle East for the US economy are uncertain”.

The agenda

• 7am GMT: UK labour market report

• 8.30am GMT: Swiss National Bank interest rate decision

• 8.30am GMT: Riksbank interest rate decision

• Noon GMT: Bank of England rates decision

• 1.15pm GMT: European Central Bank interest rate decision

• 1.45m GMT: European Central Bank press conference