We’ve been here before with Covid and Ukraine. Making borrowing more expensive won’t work – only price controls, caps and public ownership can do that
T
he Bank of England’s interest-rate committee meets on Thursday, facing up to the global inflation shock triggered by the illegal US-Israeli war on Iran. The most immediate driver of inflation is the effective closure of the strait of Hormuz by the Iranian military, a global chokepoint through which 20%-30% of the world’s oil, gas and fertiliser inputs are normally shipped from the Gulf states.
Benchmark oil and gas prices are up by more than 40% and 50%, respectively. The UK is highly exposed, given that we are net importers of gas and have an energy market where the global price of gas directly influences the cost of electricity provision. The energy price cap will shield most households until the summer, but UK diesel prices are already up by about 12% and petrol by 6%. The government has intervened with a £53m package to support households in rural areas that heat their homes with oil.
Meanwhile, analysts have warned that the fertiliser shortage could trigger a global food shock worse than that of 2022, following Russia’s full-scale invasion of Ukraine, with food production threatened on multiple continents. The UK is again highly vulnerable, having just 54% self-sufficiency in food, compared with countries such as the US, France and Australia, which are all food self-sufficient, meaning they grow enough food to feed their populations without imports if required.
