Average mortgage rates in the UK are continuing to climb, as the Middle East conflict drives up borrowing costs.

Hopes of a Bank of England interest rate cut in 2026 have been crushed this week, as oil soared, prompting lenders to reprice their mortgage products quickly.

Data provider Moneyfacts has reported that the average 2-year fixed residential mortgage rate has risen to 5.04%, up from 5.01% yesterday.

Five-year mortgage rates have jumped too, to 5.13%, up from 5.09% on Wednesday.

The City money markets are now indicating there’s a 96% chance that the Bank of England leaves interest rates on hold next Thursday, at its next rate-settting meeting.

They also indicate that the BoE is more likely to have raised rates than cut them by the end of the year.

Tom Bill, head of UK residential research at Knight Frank, says:

Spare a thought for anyone sitting on a mortgage pricing committee this week.

The job of setting loan terms must be challenging when the number of rate cuts on the horizon moves around so dramatically in such a short space of time.

The reason is the roller-coaster ride on energy markets since the end of February as the Middle East conflict has unfolded.

The surge in the oil price since the Iranian conflict began has proved lucrative for Russia, a report today claims.

Urgewald, the environmental and human rights organization, has calculated that Russia has pulled in €6bn in fossil fuel revenues since the war began less than two weeks ago.

Russia is earning €510m a day from fossil fuels, 14 per cent above February levels, they say, following the drop in supplies from the Middle East.

Last week, the US temporarily authorised India to buy oil from Moscow, and hinted that it could lift considering lifting more sanctions on Russian oil.

Alexander Kirk, sanctions campaigner at Urgewald, said:

“That is the reality of fossil fuel geopolitics. When markets panic, authoritarian exporters cash in. In less than two weeks, Russia has earned an estimated €6 billion from fossil fuel exports, money that ultimately feeds the Kremlin’s war machine.

“Easing sanctions now would not stabilise markets. What it would do is allow Russia to sell the same oil for a far better price. US sanctions have forced Russian crude to trade at a steep discount. A rollback closes that gap overnight and hands the Kremlin a revenue boost worth billions, at the very moment that pressure is starting to bite.”

“This is a political choice. Governments can hold the line on sanctions, or they can signal that if energy prices rise high enough, the West will always find a reason to blink. That choice will not just prolong Ukrainian suffering. It will undermine the security of Europe as a whole.”

European gas prices are also rising today.

The month-ahead UK gas contract is up 4.2% at 132.6p per them, while the continental European equivalent is 3.2% higher at €51.6 per Megawatt hour.

Shell’s CEO, Wael Sawan, has secured a massive jump in pay that should protect him from the inflationary shock facing those of more modest incomes.

Shell’s annual report, released this morning, shows that Sawan’s remuneration jumped to £13.756m in 2025, up from £8.615m in 2024, an increase of 60%.

The increase was driven by a share award, worth more than £9m, which had been awarded in 2023 and has now vested.

Holiday group On The Beach has suspended its profit guidance due to the conflict in the Middle East.

On The Beach told sharehoders this morning that its profitability will be hurt by the crisis, saying:

Whilst the Group has limited exposure to destinations in the Middle East, it has experienced a significant slowdown in demand following the onset of conflict in the region, particularly to destinations such as Turkey, Greece, Cyprus and Egypt.

The timing of when the conflict will end and the shape of recovery in demand to these destinations are unknown.

As a result, it has suspended its previous guidance that it would make an adjusted pre-tax profit of between £39m and £43m this financial year.

As well as oil, the Iran war is disrupting supplies of fertilisers, which could drive up food prices.

The strait of Hormuz is a key route for fertilisers critical to global agriculture.

Analysts have told CNBC disruptions could feed through to higher farming costs, reduced crop yields and ultimately more expensive food.

Raj Patel, a research professor at the University of Texas, has warned that fertiliser disruptions linked to the conflict could amplify global food pressures through several channels simultaneously.

Patel says:

“The Strait of Hormuz is a fertiliser chokepoint. Qatar, Saudi Arabia, Oman, and Iran together supply a substantial share of the world’s traded urea and phosphates, and virtually all of it transits Hormuz.”

Goldman Sachs have raised their forecasts for the price of oil at the end of this year, having concluded that there will be longer disruption to oil flows in the Strait of Hormuz.

The investment bank has raised its forecast for Brent, the international benchmark, in the fourth quarter of 2026 to $71 a barrel, up from $66 a barrel. US crude is now forecast to average $67 in Q4, up from $62, Reuters reports.

Goldman analysts in a note on Thursday said they now assume 21 days of low Strait of Hormuz (SoH) oil flows at 10% of normal levels followed by a 30-day gradual recovery, compared with their earlier expectation of a 10-day disruption.

Brent is expected to average $98/bbl in March and April, but could jump to $110 in an ‘upside risk scenario’ where flows through the strait are disrupted for a month.

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

Hopes that the market turmoil in the energy market might have abated are fading rapidly today, as Iran escalates its attacks on infrastructure and transport networks across the Gulf.

The oil price has jumped after two tankers were set ablaze two tankers in Iraqi waters early this morning. The attacks came after senior Iranian officials warned of a long “war of attrition” that would threaten chaos in the global economy.

There are also reports that Oman’s key oil export terminal has been evacuated.

These widespread Iranian attacks on Middle Eastern energy facilities drove Brent crude over the $100 a barrel mark again in early today, hitting $101.59 a barrel; it’s now slipped back to $97.50 a barrel, up 6% today.

The jump in oil prices is fanning fears that the global economy could be tipped into stagflation – the unpleasant combination of rising prices and stagnant growth.

Yesterday’s announcement of the largest release of government reserves in history has not calmed fears of major supply shortages if travel through the strait of Hormuz is not restored.

Jim Reid, market strategist at Deutsche Bank, says investors are facing the risk of a “broader stagflationary shock”:

From a market perspective, the problem is that investors are increasingly pricing in a more protracted conflict that causes extensive economic damage. After all, with no concrete signs of de-escalation yet, that’s keeping oil prices elevated, and raising the risk of a broader stagflationary shock. Indeed, we know that investors are pricing in the longer scenarios, because the 6-month Brent future is also up +3.06% this morning to $82.97/bbl, and with each passing day it gets harder to argue that the disruption to shipping and energy infrastructure will only prove temporary.

Daniel Casali, chief investment strategist at UK wealth manager Evelyn Partners, warns that geopolitics, rather than fundamentals, are increasingly driving markets, adding:

The conflict is potentially a stagflationary shock the severity of which depends on its length and export volumes while the SoH remains closed.

Oil inventories buy time, but as they erode, risks of higher energy prices, rising inflation and market volatility increase.

The agenda

• 9am GMT: IEA Oil Market Report

• 9.30am GMT: Governor of the Bank of England Andrew Bailey giving opening remarks at the Financial Stability Board

• 11am GMT: Turkey interest rate decision

• 12.30pm GMT: US weekly jobless claims