Attacks on shipping in the Red Sea threaten to push up inflation and mortgage rates, experts have suggested. Increased shipping costs caused by Yemen-based Houthi rebels targeting ships on the key route between Europe and Asia could lead to increased prices of goods including clothing, electricals and furniture in the UK.
Lewis Shaw, owner of Shaw Financial Services, said there is every possibility the Red Sea crisis could see the price of such goods increase.
He said: “If the oil cost rises, we could see inflation tick back up. We’ve already seen gilt yields rise in response to this, which has also raised swap rates and may eventually show up in mortgage rates.”
Mr Shaw pointed to lender, Generation Home, which today (January 5) increased rates on its headline deals.
The British Retail Consortium has also identified price rises and the availability of some goods on UK high streets as a possible knock-on effect of the Red Sea crisis.
Susannah Streeter, Head of Money and Markets for Hargreaves Lansdown, said the issue could cause a “fresh inflationary headache” for Bank of England policymakers, who decide interest rates in Britain.
She said: “Middle East tensions could be a big spanner in the works for any hope that the Bank of England might start tinkering early with interest rates.”
Interest rates, which are used as a tool to control rising prices, currently stand at 5.25 percent. Economists think they could be cut later on this year if the cost-of-living crisis continues to cool. Inflation eased more than some analysts expected in November, falling to 3.9 percent, according to the Office for National Statistics.
Mr Shaw warned: “Anyone with a mortgage hanging back because they think rates will continue their downward trajectory could be in for a rude awakening.”
He added: “This is the problem with trying to make predictions about interest rates. Black swans show up at the worst possible time.”
Energy prices have already risen as concerns have grown over the escalation of the conflict in the Middle East and what it could mean for oil supply.
Global shipping firms have continued to pause shipments through the Red Sea after attacks on commercial vessels have caused weeks of disruption.
Iran-backed Houthi rebels in Yemen have attacked container ships going through the Red Sea since November in response to the conflict between Israel and Hamas in Gaza
The Suez canal connecting the Red Sea to the Mediterranean is crucial for transporting energy, commodities and consumer goods. About 30 percent of all container shipping passes through the route between the East and the West.
Shipping firms having to reroute means sending vessels around Africa’s Cape of Good Hope, which is much further to travel and can add about two weeks to journey times.
Some major shipping companies such as Maersk and Evergreen, as well as oil giant BP, have been forced to pause shipments or reroute due to safety concerns.
The UK and 11 other countries issued a final warning to militants to ease hostilities in the trade route on Wednesday (January 3).
