This special UK Economics Scenarios Chart Pack builds on the analysis and scenario forecasts published in the Global Economic Outlook (see here) to provide more detail on how the Iran War could influence inflation, GDP growth, the labour market and interest rates in the UK.
The stagflationary effects of the leap in energy prices mean that in our baseline scenario we now expect CPI inflation to rise to a peak of around 4.5% later this year, rather than falling below the Bank of England's 2.0% target on our pre-war forecast, and real GDP to grow by 0.5% compared to 1.0% before the conflict. We think the Bank of England will put equal weight on the rise in inflation and weaker activity and keep interest rates at 3.75% this year. But with the labour market particularly weak, interest rates could still be cut in 2027, perhaps to 3.00%. In our adverse scenario, CPI inflation rises to 7.0%, there is a mild recession and the Bank raises interest rates to 4.50%.
Subscriber content
Read this in full, free
Start a free trial and use one of your 10 free starter credits to unlock this piece.
