Burnham’s cost of living push under threat as oil hits $100
The benchmark oil price has hit $100 per barrel amid a re-escalation of war in the Middle East, undermining Andy Burnham’s cost of living drive.
Brent crude oil prices inched past the $100 milestone on Thursday afternoon following attacks by the Houthis, an Iran-backed militia based in Yemen, on two Saudi Arabian tankers.
The recent surge in energy pricing has brought markets back to where they were in March when the US and Israel launched attacks on Iran. The last time Brent crude traded at $100 was in late May.
President Trump’s ceasefire agreement with Iran in June raised hopes that a peace deal between warring parties could be struck and trading across the Strait of Hormuz could normalise.
Attacks by the Houthis over the Red Sea last night have prompted Trump to issue new threats to Iran as he said he would hold the country “responsible” for the re-emergence of war in the Middle East. Trump added that “major military punishment” would come for Iran given the militia was backed by Iran.
US forces also responded with strikes on “targets including maritime capabilities” overnight.
The Houthis attacked tankers after the political group had imposed a maritime blockade on Saudi Arabia in retaliation to a Saudi blockade of ports in north-western Yemen.
The Iranian leadership’s military division, the Islamic Revolutionary Guard Corps, has also targeted ships passing through the Strait of Hormuz. Trump previously threatened to attack a bridge or power plant if forces hit ships in the Strait of Hormuz.
Oil price shock hits gilts
Tensions flaring up again across the Middle East has put shipping captains on edge and slowed down trade activity across the region despite it being critical for over a fifth of the world’s oil and gas supplies.
European natural gas futures prices also jumped to €62/MWh from a previous low in June of €41, which could hurt UK households towards the end of the year. Gilts, which are UK government bonds, were also dumped, pushing borrowing costs higher.
Short-term gilt yields suggest that markets are pricing in nearly three interest rate hikes over the next two years.
Burnham’s first few days in Number 10 has focused on lowering bills for households. A decision to strip VAT from energy bills could strip £45 off the energy price cap for households from October although economists and politicians have raised questions over funding for it.
Burnham followed his first policy with two further announcements to cut business rates for pubs and cap bus fares at £2, raising further concerns over funding.
Economists have suggested that measures could take around 0.2 percentage points off CPI inflation later this year although price growth is expected to at least creep past 3.5 per cent.
City analysts have also said costs for households largely depend on developments taking place in the Middle East.
Before leaving Downing Street, Sir Keir Starmer urged his successor to take diplomacy seriously as international affairs would affect people’s bills.