Are interest rates on the way up again?

The recent surge in oil prices and potential higher borrowing costs have renewed concerns about rising interest rates. The European Central Bank recently raised rates to 2.5% in response to inflation remaining well above its 2% target due to the US-Iran conflict. The US Federal Reserve, which has held rates steady between 3.5% and 3.75% for five consecutive meetings, is expected to make a decision on Wednesday.

Fed Chair Kevin Warsh's comments on slowing price rises have fueled expectations of a rate hike this month. However, some economists, including Oxford Economics' Grace Zwemmer, anticipate rates will remain unchanged. The US-Iran war has led to restricted shipments through the Strait of Hormuz, driving up Brent crude prices to around $105 per barrel.

Higher energy prices can make transporting goods more expensive, ultimately affecting consumer goods and services. Central banks use higher interest rates to limit price rises by slowing consumer spending and encouraging saving. However, higher rates can also discourage business investment and hiring. The UK Bank of England is expected to review current price pressures and the wider economic picture when it meets next week.

With inflation in the UK at 2.9%, it is expected to rise further in coming months, although the Bank is not expected to change rates at this time.