BNP Paribas Warns of Stagflationary Scenario in UK Economy

BNP Paribas has issued a warning about the UK economy's future prospects. The French banking giant forecasts that UK economic growth will slow to 1% in 2026, down from an estimated 1.3% in 2025.

The slowdown is largely attributed to the ongoing conflict in Iran, which is disrupting global energy markets and supply chains, leading to higher costs for businesses and consumers.

The projected 3.2% inflation rate for 2026 would mark a significant increase from current levels, driven primarily by disruptions to global energy markets and supply chains linked to the conflict in the Middle East.

BNP Paribas notes that the Bank of England may be forced to maintain or even raise interest rates to combat the elevated inflation, which could provide some support for the British pound in the short term.