The article below is an excerpt from Karl Matchett’s Independent Money newsletter. To get the email delivered straight to your inbox, simply enter your email address in the box above.
Dismal events in the Middle East have dominated headlines all week and it has been no different in the Indy offices. My job, as Business and Money Editor, has been to explain how what happens there can affect your money here.
There is no true way to predict how everything will turn out, of course, so there is no sense pretending we know for certain.
The rapid surge in oil prices and the stock market flip-flopping rapidly only serves to highlight that much can change in the course of a day, let alone a week, but there are two key aspects in particular you should be aware of: energy bills and mortgages.
First, the chain of events.
The snarling of tankers near Iran and the shutting of production in Qatar and beyond means the supply of oil and gas is hampered. That (plus increased demand) pushes up prices globally, which is problematic if it is sustained. Shutting down production because of storage issues are compounding matters.
When oil goes higher, everything using oil costs more. That means petrol at the pumps, of course, but also anything related to transport (fuel), heating (energy), production (raw materials and energy) and more.
Now, if production costs are going up, the end price of goods may also increase. And if prices go up, that means inflation is back on the rise – just with the 2 per cent target in sight, too.
Which brings us to energy bills. Unless you are using heating oil, it will not be an immediate impact, but the July energy cap faces an almost certain lift, as the cap is based in part on wholesale prices. Mixing renewables in has helped, so we should not see spikes to 2022 levels of costs – but still, up is up.
As for mortgages, it is a secondary knock-on effect. If inflation goes up then, as we have detailed before, the Bank of England uses interest rates to control it – and now, instead of cutting in March or April, we could easily be in a position where they vote to raise them once more instead.
Already some mortgage providers have pulled their lowest deals from the market. Swap rates (which mortgage products are based on) are on the way up, and you can bet some lenders will be raising rates as we head into next week. As we usually say, if you are approaching a new fixed-term deal, it is wise to lock in the best one you can early. You can always change later if something better comes along, and in most cases you can agree a new one with six months left on your existing term.
Hopefully, for many reasons – humanitarian as well as for the sake of people’s pockets – matters are calmed in the coming days.
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