Iran war energy shock undermines UK growth forecast and inflation optimism

In her Spring Statement, the Chancellor’s forecast that inflation would soon settle towards target has been blown off course by a surge in oil and gas costs triggered by the Iran war, rendering earlier price assumptions almost obsolete. With wholesale gas prices up sharply and Brent crude climbing beyond $80 a barrel, cost-push pressures threaten to feed through into consumer inflation and household energy bills, squeezing real incomes and demand. The Office for Budget Responsibility has already trimmed 2026 GDP growth, warning that higher energy input costs and weaker supply conditions could dampen output and prolong cost-of-living pain.

Iran war leaves forecast for low UK inflation not worth the paper it was written on | Money News | Sky News

1. Explain how the Iran War could cause a negative supply-side shock for the UK economy.

2. Assess how the Iran War is likely to affect the UK’s inflation rate.

3. Discuss one microeconomic impact and one macroeconomic impact (except for inflation) of rising gas and oil prices.