City economists warn that the Bank of England could be forced to abandon its current forecasts and raise UK interest rates later this year if oil prices climb back above $100 a barrel, following renewed conflict in the Middle East. The Bank's monetary policy committee is expected to keep rates on hold at its meeting on Thursday, but the resumption of fighting after the collapse of a fragile US-Iran ceasefire has revived fears that higher fuel costs could reignite inflation, putting future rate rises back on the table.

Brent crude briefly rose above $100 a barrel before easing to $96, well up on the $71 recorded earlier this month, while gas prices have also risen ahead of Europe's winter storage refill period. The Bank's nine-member committee is expected to vote seven to two in favour of holding rates at 3.75% until at least December, mirroring its June decision. Economists including Deutsche Bank's Sanjay Raja and Nomura's George Buckley said sustained oil prices around $90-$100 could require one to two quarter-point rate hikes, while Mohamed El-Erian of the University of Pennsylvania warned that oil above $90 a barrel could drive up food and transport costs through broader "second-round" inflationary effects.