Oil prices hit a record of more than $78 a barrel on Friday, driven up by the escalating Middle East conflict. At the same time the Bank of Japan ended its zero interest-rate policy by raising its key rate, for the first time in six years, to 0.25%.

The Japanese move was a further signal that the global era of cheap money is over. Analysts will be scrutinising testimony in America by Ben Bernanke, the Federal Reserve chairman, for clues on the likely peak in US interest rates, currently 5.25%.

According to HSBC, the risk is of monetary “overkill” with central banks raising rates too much. “There is an increasing risk that tighter UK and global monetary policy causes a hard landing in 2007,” it says in a new report, The Inflation Fight.

It warns the Bank of England not to respond to higher inflation due to increases in oil prices by raising interest rates, as long as there is no evidence of so-called second-round effects on wage settlements.

Fears over the economic consequences of high oil prices will form the backdrop to today’s talks by G8 leaders in St Petersburg. Peter Dixon, an economist with Commerzbank, said dearer oil added to the risks. “If it’s just a temporary spike, then we’ll carry on as before,” he said. “But if this goes on for any length of time and oil continues to rise, we have a problem.”

Muhammad-Ali Zainy, a senior energy economist at the Centre for Global Energy Studies, said: “Oil could hit $80 or higher this week if the situation worsens. If a shortage of oil develops, the price will go up tremendously. It will skyrocket. We might see it hit $100 if, say, a hurricane in the US causes some destruction to facilities.”

The recent period has been unusual in that, despite a trebling of oil prices over the past three years, the world economy has continued to grow strongly, expanding at its fastest rate for more than three decades.

But leading indicators of the global economy, monitored by economists at Dresdner Kleinwort, point to a US-led slowdown already in train. Figures on Friday showed weak American retail sales.

“We’re looking for the US economy to slow to 2.5% but the risks are very much on the downside,” said Ian Harwood, chief economist. “Higher oil prices can only intensify the pressure.”

Evidence of a squeeze on UK companies will mount this week with the publication of a gloomy survey from Begbies Traynor, a company that specialises in managing insolvencies. It found that the number of British firms it deemed to be at risk of insolvency had jumped 70% in the first six months of the year.

Begbies’ survey found that 4,692 companies a month on average were “on the brink of insolvency”, compared with 2,755 over the same period last year. Graham McInnes, chief financial officer, said that there was evidence of a “classic credit squeeze”.

Research released today by Ernst & Young shows that 84 profit warnings were issued by UK quoted companies in the first quarter, similar to the previous three months. Warnings by software and computer-service firms hit a five-year high.

Keith McGregor, corporate restructuring partner at Ernst & Young, said: “A key feature of the last quarter has been an uncertain economic environment, with volatility in the global equity markets, due in part to resurgent inflation. While the global economy is growing, rising prices, with associated interest-rate rises, are still creating a feeling of uncertainty.”

Retailers, however, had a good second quarter. GFK, the market-research group, estimates that sales of consumer durables rose by 8% in the second quarter after declining by 0.8% in the first.

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