The escalating conflict between the US, Israel, and Iran has sparked fears of stagflation in the UK, as oil prices surged on Monday before easing slightly. Economists warn that the energy supply crisis could drive up inflation and interest rates, while economic growth weakens.
Global stock markets experienced a sharp sell-off amid concerns that the Middle East war could trigger a worldwide economic shock. Although prices fell back after Donald Trump suggested the conflict might end "very soon", oil continues to trade at elevated levels, raising the risk of sustained price pressures.
Stagflation—where economic activity stagnates alongside rising inflation—looms large for the UK economy, which is already grappling with high energy costs and subdued growth. The combination of higher oil prices and potential supply disruptions threatens to exacerbate the cost-of-living crisis.
Economists caution that prolonged instability in the region could keep energy prices high, further squeezing households and businesses. The Bank of England may face renewed pressure to raise interest rates to curb inflation, even as the economy slows, complicating the policy outlook.
