Inflation outlook ‘uncertain’ as Trump warns Iran – Daily Business

Donald Trump has issued an ultimatum to Iran over the Strait of Hormuz

Inflation is expected to show further signs of steadying or even easing in figures this week, though analysts will be more focused on how the war in the Gulf is already seeing prices rise again.

The cost of living had been showing signs of easing towards the Bank of England’s 2% target and economists are expecting inflation to have held relatively steady in February, or dipped slightly, from 3% in January.

However, the conflict between the US, Israel and Iran has forced a revision of immediate and longer term forecasts. Sanjay Raja, Deutsche Bank’s chief UK economist, said the inflation outlook has “rarely been more uncertain than it is now”.

Edward Allenby, senior economist for Oxford Economics, says CPI inflation may come in at 2.8%, largely thanks to a predicted fall in petrol prices and slower inflation in the services sector.

However, he is now expecting it to exceed 4% during the second half of 2026, if the war continues to pump up energy prices.

President Trump today imposed a 48-hour deadline on Iran to reopen the Strait of Hormuz, which carries 20% of global oil supplies, or face ‘obliteration’ of its power plants. The threats are likely to see further upward movement in oil prices.

The Bank of England said last week that its 2% inflation target would be delayed by increases in wholesale energy costs. It is now expecting inflation to be around 3% in the second quarter of 2026. The market has gone from expecting two interest rate cuts this year to two rises.

Cornwall Insights, an energy consultancy, has calculated that for the July to September period, the energy price cap could rise from £1,641 a year to £1,972.

Housebuilding will be affected by the rise in costs. Building materials are already going up in price. One building materials manufacturer, Kingspan, warned its customers last week of an increase in prices of some products of up to 20% from next month.

Construction costs are rising again (pic: Terry Murden / DB Media Services)

Moneyfacts says nearly 700 mortgage deals have been pulled since the war erupted and new borrowers can expect to pay £800 a year more on average than before the conflict.

Travel is adjusting to the possibility of a drawn out conflict. British Airways has suspended flights to Dubai until at least 31 May

Holidaymakers are switching their destination preferences and travel plans by aiming to avoid stopovers. Popular locations in the Gulf and north Africa are being overlooked in favour of perceived safer countries such as Iceland, the Caribbean, New Zealand and South Africa.

Loveholidays, the online travel business, has delayed a stock market flotation that had been expected in the coming weeks.

Next

In corporate news this week, high street retailer Next has arguably prepared investors for a further boost to its full-year earnings.

The company continues to deliver against a sector which has struggled with the cost-of-living crisis and cautious consumer spending. For 2027 it is projecting mid-single-digit sales growth.  

Chief executive Simon Wolfson has proved to be a past master of beating conservative guidance, so those numbers could well get upgraded later in 2026, says AJ Bell. 

One area of strategic interest to investors is the performance of Next’s international business which has recently displayed strong growth. 

DIARY 

Monday 23 March 

European consumer confidence  

Tuesday 24 March 

Full-year results from Kingfisher  

Half-year results from Bellway 

Wednesday 25 March 

Thursday 26 March 

Full-year results from Next 

US weekly jobless claims

Friday 27 March 

Full-year results from BYD 

First-quarter results from Carnival  

UK Gfk consumer confidence  

UK retail sales  

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