UK Economy Resilient Despite Iran War, Inflation to Linger

The UK's economy has shown resilience after the energy price shock caused by the Iran war, but inflation is expected to remain above the Bank of England's target until 2029.

A new forecast from the National Institute of Economic and Social Research (NIESR) predicts that gross domestic product will expand at an annual rate of 1.1% in 2026, up from a previous forecast of 0.9%. Inflation is projected to average 3.1% in 2026, peaking at 3.8% in February 2027.

NIESR's deputy director for macroeconomics, Stephen Millard, warned that the energy shock has weakened the growth outlook and eroded most of the government's £24 billion fiscal headroom. He also stated that even if peace is restored relatively quickly in the Middle East, inflation will still rise.