The impact of the conflict in the Middle East on energy markets and the UK economy remains highly uncertain. As things stand, we suspect the most likely scenario is one in which the conflict comes to a swift end and energy supplies normalise. In this scenario, the drag on GDP growth would be fairly small and CPI inflation would still return to the 2.0% target in early 2027, allowing the Bank of England to cut interest rates from 3.75% now to 3.00% early next year. In a more extreme scenario where energy supplies are disrupted for most of this year, the upward influence on inflation would be far greater and would mean the Bank needs to raise interest rates.
At 3pm GMT on Thursday 19th March we will be hosting a 20-minute online Drop-In to discuss the outlook for Bank of England, ECB and Fed policy. (Register here.)
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