The possibility of a conflict in the Middle East has raised concerns among experts, predicting significant repercussions for the UK economy. Oxford Economics consultants have warned that the ongoing Iran war could lead to a loss of 150,000 jobs in the UK and an additional financial burden on households, estimated at £730 on average.
The consultancy firm forecasts a downturn in economic growth, with potential job losses equivalent to a 0.5% increase in unemployment. Inflation is expected to surge to 4.5%, a substantial jump from the 3.3% reported by the Office for National Statistics in March, surpassing the 3.5% peak projection by the Bank of England and various economists.
Michael Saunders, an Oxford Economics senior advisor and former Bank of England rate-setter, expressed a grim outlook for the economy, emphasizing the adverse effects on household budgets due to rising fuel and other expenses. He highlighted that households could face an annual shortfall of approximately £730 compared to initial projections, with the situation worsening if the conflict prolongs.
The concerns extend beyond immediate energy cost hikes, encompassing secondary effects such as potential wage demands from workers to counter anticipated inflation increases. The Bank of England’s Monetary Policy Committee is set to convene to deliberate on adjusting the current base rate of 3.75%, considering public inflation expectations.
Saunders suggested a potential rate hike to 4.25% later in the year, aligned with projections of inflation reaching 4% by July. Nevertheless, some economists, like Liz Martins from HSBC, remain cautious about the Bank’s decision to raise rates, estimating inflation to rise to around 3.5%.
Additionally, the Resolution Foundation warned that the ongoing conflict could trigger an energy shock, collectively costing UK households an estimated £11 billion this year.