Households in the United Kingdom have been warned they could face as many as four interest rate increases this year as the conflict involving Iran drives up global energy prices and fuels inflation fears. Investors briefly pushed government borrowing costs above 5 percent for the first time since 2008, intensifying pressure on mortgage holders and businesses reliant on loans. Although markets eased slightly after the President of the United States announced a temporary halt to attacks, expectations of higher rates remain strong.

Before the escalation in the Middle East, markets had anticipated rate cuts that could have brought borrowing costs down to 3 percent. Instead, surging oil and gas prices and disruption around key shipping routes have raised the risk of a sharp inflation shock. Analysts have downgraded growth forecasts for Britain, predicting expansion of just 0.6 percent this year and warning that unemployment could rise to its highest level in more than a decade.

The spike in government bond yields has increased the cost of servicing Britain’s 2.9 trillion pound debt and left the country paying more to borrow than other members of the Group of Seven. Economists say the situation has rapidly shifted from a geopolitical crisis to a serious domestic economic threat, with higher borrowing costs and weaker growth likely to weigh heavily on households and public finances in the months ahead.