Central banks risk a recession by raising rates to tackle Iran oil shock, strategist warns

Central banks risk a global recession by raising interest rates in a bid to contain soaring energy costs, an analyst has said. Julian Howard, chief multi-asset investment strategist at GAM Investments, warned that rate-setters are now "on the verge of policy mistake territory" as expectations of rate rises grow. Howard said that the traditional response to rising energy costs — ramping up borrowing costs — is an error given the supply-side nature of the energy price shock. "The kind of interest rates that are needed to actually stop people filling up their car, to stop people flying, would be seriously high, very, very high — and recession-inducing," Howard said. The European Central Bank held interest rates steady last week , despite eurozone inflation coming in at 3% in April. The Bank of England also left rates unchanged as the U.K. grapples with higher oil prices. But investors are now pricing a June ECB rate hike, while BoE governor Andrew Bailey told CNBC that a protracted energy price shock could force the bank's hand on borrowing costs. The Reserve Bank of Australia has already moved, increasing rates by 25 basis points to 4.35% on Tuesday, after higher fuel prices pushed headline inflation in the country to 4.6% in March, from 3.7% the previous month. Other global monetary authorities could also follow suit. …