The Rest Is Money 276. Will bond market vigilantes see off Starmer’s rivals?
May 6, 2026
Could bond markets protect a fragile government even after electoral humiliation? They unpack Bank of England scenarios for oil shocks, inflation and who shoulders higher rates. They debate whether green policies can revive growth and how defence and welfare costs strain public finances. They also explore AI’s potential to both create demand and displace jobs, using Jevons Paradox as a historical lens.
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Bank of England Three Oil Shock Scenarios
- The Bank of England modelled three oil shock scenarios A, B and C that all worsen living standards with varying severity.
- Scenario A is mild with inflation peaking ~3.6%, B (most likely) keeps oil high longer, C could push inflation to 6.2% and force bigger rate hikes.
Iran War Puts Central Banks Back Into Tightening Mode
- Global central banks now see Trump's Iran war as an inflationary shock that may end the rate-cutting cycle.
- Markets expect some UK rate rises this year; Robert Peston warns UK rates face stronger upward pressure than many peers.
Bond Markets Could Decide Post-Election Policy
- Poor election results for Labour could trigger internal shifts left or leadership change, which bond markets would interpret as higher future borrowing.
- Bond-sellers (vigilantes) could force up UK yields, raising government and consumer borrowing costs.