A fresh surge in mortgage costs is squeezing UK homeowners and buyers, as financial markets reassess the economic fallout from the ongoing conflict in the Middle East and its volatile impact on global energy prices.
Data from the financial information provider Moneyfacts shows the average two-year fixed residential mortgage rate has jumped to 5.20% today, up from 5.10% at the end of last week. Just a month ago, on the eve of the US-Israeli war on Iran, the average was 4.84%. The typical five-year fixed rate has also climbed, reaching 5.25% from 5.19%.
This sharp rise is being driven by a dramatic shift in City expectations for the Bank of England. Where markets had previously anticipated rate cuts, they are now pricing in the likelihood that the Bank will not cut at all this year and may even raise its base rate from the current 3.75% back to 4% by the summer of 2027.
Market Upheaval and Geopolitical Shock
The mortgage market itself is in a state of upheaval. The number of residential mortgage products available has dropped to 6,972 today, down from 7,106 at the close of last week. In the last 48 hours alone, nearly 500 deals have been pulled by lenders—the biggest single disruption since the chaos that followed the September 2022 mini-budget, though not on the same scale.
At the heart of this reassessment is the oil price. According to analysis by Deutsche Bank, the cost of Brent crude surged 42% in the two weeks following the strikes on Iran, with US crude (WTI) up 47%. This spike, dubbed ‘Trumpflation’ by some commentators, has directly fed into fears of persistent inflation.
However, the oil market remains volatile. Prices dropped back in today’s session following reports that oil loading had resumed at the United Arab Emirates port of Fujairah after a disruptive drone attack. Brent crude was down 2.2% to $100.87 a barrel, while US crude fell more sharply by 4.7%.
Central Banks Urged to ‘Look Through’ the Shock
Amid this turbulence, the world’s central bank for central banks has issued a note of caution. The Bank for International Settlements (BIS) urged policymakers not to overreact to the crisis-driven spike in energy prices.
In its latest report, the BIS said the current surge was a textbook supply shock. Its economic advisor, Hyun Song Shin, advised that such temporary shocks are cases policymakers should “look through and not react with monetary policy.”
This presents a dilemma for the Bank of England. Its Monetary Policy Committee (MPC) left rates unchanged at 3.75% in February, and the Bank’s own projections had Consumer Prices Index inflation falling to its 2% target by June. However, the recent conflict has clouded that outlook.
Divisions are clear. Investment bank Goldman Sachs still expects two rate cuts this year, starting in July, and forecasts a 7-2 vote to hold rates at this Thursday’s MPC meeting. This contrasts sharply with money market bets pointing to a future rate rise.
Political and Social Response to Rising Costs
The political focus has shifted to the immediate impact on household bills. Prime Minister Sir Keir Starmer has announced £53m of support for rural communities facing soaring heating oil costs, promising action against suppliers accused of cancelling orders and jacking up prices.
The announcement was welcomed by the Trades Union Congress, though its General Secretary, Paul Nowak, warned more help would be needed to shield the UK from what he termed a “Donald Trump-made cost of living crisis.” Greenpeace UK also supported the aid but argued it underscored the urgent need to transition away from volatile fossil fuels to homegrown renewable energy.
Meanwhile, the tools for measuring that cost of living are being updated. The Office for National Statistics has refreshed its inflation basket for 2026, adding houmous, alcohol-free beer, pet grooming, motorhomes, and dashboard cameras to reflect modern spending habits. In a significant methodological shift, it will also begin using automated supermarket checkout data for over half of the grocery market, replacing manual price collection.
Corporate Moves Reflect Broader Uncertainty
The financial uncertainty is echoing through the corporate world. In a significant blow to the City, the building materials giant CRH has confirmed it will delist from the London Stock Exchange, having already moved its primary listing to New York. Susannah Streeter, chief investment strategist at Wealth Club, said the departure reinforces the perception that deeper pools of capital and higher valuations lie across the Atlantic.
In European banking, a major consolidation move is underway. Italy’s UniCredit has launched a voluntary exchange offer for German lender Commerzbank, valuing it at approximately €35bn. UniCredit, which already holds a stake of just under 30%, is pushing towards the threshold that would trigger a mandatory takeover bid under German law, despite reported opposition from the German government.
On Wall Street, stocks opened higher despite the geopolitical tensions, with the S&P 500 up 1% in early trading. Analysts suggested the dip in oil prices was providing some support, though cautioned that recent rallies had often faded. Joe Mazzola, head of trading and derivatives at Charles Schwab, noted investors were facing a packed week of central bank meetings and key corporate events, keeping markets on edge.
The confluence of events—from mortgage lenders rapidly repricing risk to central banks weighing a geopolitical energy shock—creates a precarious moment for the UK economy. The path of inflation, and therefore interest rates, is now inextricably tied to the unfolding conflict and the volatile price of oil, leaving households and policymakers navigating profound uncertainty.
