Persian Gulf tensions leave UK inflation hinging on energy supplies

UK inflation’s path over the next year may depend less on Threadneedle Street and more on the Strait of Hormuz. While inflation is forecast to peak near 4% later in 2026, the extent of any subsequent fall will be shaped by energy supply disruptions and commodity shortages. A reopening of trade routes and limited infrastructure damage would ease cost-push inflation as oil and LNG supplies recover. But prolonged disruption could keep energy prices elevated, squeeze productive capacity and push inflation significantly higher. For now, markets appear cautiously optimistic, although geopolitics remains the inflation wildcard.

The good, the bad and the ugly: what scenarios for UK inflation? - Economics Observatory

1. Using Figure 1 in the article, identify and compare the anticipated difference in the future UK inflation rate in the good, the bad and the ugly scenarios by May 2027.

2. Examine TWO factors expected to cause higher inflation over the next year.

3, Discuss the extent to which the Bank of England’s base rate policy can help ease the expected future inflation pressure.