Iran War Could Cost UK 150,000 Jobs and £730 Per Household, Experts Warn
A former Bank of England rate-setter has detailed the severe potential economic fallout from the Middle East conflict, predicting it could trigger substantial job losses and increased costs for British families. Consultants Oxford Economics forecast that the Iran war may lead to an economic downturn, severely impacting the UK's already sluggish growth this year and next.
Significant Job Losses and Inflation Spike Predicted
Oxford Economics predicts the hit to firms will result in unemployment growing by 0.5%, equivalent to approximately 150,000 job losses across the country. Additionally, the firm warns that inflation could jump to 4.5% last year, up from the 3.3% recorded in March, as confirmed by the Office for National Statistics. This projected increase is notably higher than the 3.5% peak forecast by the Bank of England and several other economists.
Michael Saunders, senior advisor at Oxford Economics and a former rate-setter at the Bank of England, stated, "Even if the war ended very soon, the outlook for the economy is pretty grim." He emphasized the broader implications for household budgets, particularly from soaring fuel and other essential costs.
Household Budgets Under Pressure
Mr Saunders highlighted that the average UK household could be about £730 a year worse off than anticipated at the start of this year due to the conflict's economic ripple effects. He made these remarks at an event organised by the think tank the Resolution Foundation, cautioning that the situation could deteriorate further if the war persists longer than expected.
The concerns revolve around both the immediate impacts, such as higher energy costs, and secondary effects, including workers demanding higher wages to offset fears of rising inflation. This prospect of heightened inflation expectations is likely to be a key consideration for the Bank of England's Monetary Policy Committee when it meets next Thursday to decide on potential changes to the base rate, currently at 3.75%.
Bank of England's Potential Response
Mr Saunders predicted that the Bank may increase rates to 4.25% later this year, especially if inflation reaches 4% by July as forecasted. However, other economists express more uncertainty about such moves. Liz Martins, senior UK economist at HSBC, told the same event that she believes inflation is still only likely to rise to around 3.5%, indicating a divergence in expert opinions on the economic trajectory.
Meanwhile, the Resolution Foundation reports that an energy shock caused by the Middle East war will cost UK households a combined £11 billion this year, underscoring the widespread financial strain. This analysis adds to growing warnings about how global conflicts can translate into tangible economic hardships for ordinary citizens, affecting everything from employment stability to daily living expenses.
