Central Banking and Interest Rates

The OECD has downgraded its forecast for UK economic growth next year to 1% from a previous estimate of 1.1%, citing the ongoing US-Israel war in Iran and higher fuel prices. However, it upgraded its prediction for 2026 to 1.1% from 0.9% due to solid domestic demand. The conflict has pushed up oil and gas prices globally, contributing to higher inflation in the UK and other countries.

Marine war-risk premiums for ships crossing Bab el-Mandeb have held near 3 percent of vessel value despite intensified attacks in early September, while political violence and terrorism cover is approaching 10 percent as underwriters grow more selective. The split pricing reflects a corridor treated as both a war zone and a terrorism zone, pushing more cargo onto Cape of Good Hope diversions and raising freight and delay costs for Horn of Africa economies. Saudi Arabia has meanwhile shifted larger crude volumes through Oman's Port of Sohar after drone damage disrupted its Red Sea pipeline route, further reducing commercial traffic through the strait.

UK government borrowing reached £18bn in August, heaping pressure on Chancellor John Healey ahead of the budget. The higher-than-expected figure risks unsettling bond markets as the Treasury prepares its fiscal plans.

UK consumer confidence has fallen to a three-year low amid fears of rising interest rates, higher mortgage costs, and growing job insecurity. The S&P Global index slipped to 42.7 in September, with over half of respondents expecting borrowing costs to rise further. The decline adds pressure on Chancellor John Healey ahead of next month's budget, as mortgage rates hit multi-year highs and employers scale back hiring.