Oil price shock likely to ‘push the UK economy into recession’
The oil price shock hitting the global economy could push the UK into recession, Tomasz Wieladek, chief European macro economist at investment managent firm T. Rowe Price, is warning this morning.
Wieladek says the UK’s economy’s failure to grow in January show that it was weak even before the oil shock, which is likely to hit consumer spending and create more cost of living pressures.
Following today’s weaker-than-expected GDP report, Wieladek writes:
double quotation markUK GDP growth stagnated in January, far weaker than market expectations of a 0.2% month-on-month pickup. The weakness was driven by services, the main part of the UK economy, and can be partially explained by tight monetary policy and the fiscal policy consolidation the UK is currently experiencing. Both of these policies are reducing demand, and the data is beginning to show it. Furthermore, AI is likely reducing hiring in the services sector, which in turn is leading to higher unemployment and softer demand. Overall, the UK economy has been weak ahead of the most recent oil shock.
The war in the Middle East and the consequent oil price rise will raise inflation and reduce consumer spending. The associated tightening in financial conditions we have seen in the bond market will exacerbate these effects. There will be significant demand destruction going forward.
The UK has been one of the weakest advanced economies in terms of recent growth performance. Therefore, the current oil price shock will most likely not just lead to inflation, but also push the UK economy into recession, raising unemployment and reducing GDP. Stagflation is just around the corner.
This puts the Bank of England (BoE) into a difficult position, he adds:
double quotation markOn the one hand, the BoE’s inflation-target credibility has weakened, as UK inflation has been higher and more persistent than elsewhere. On the other hand, a recession is likely. What should the BoE do? The key to easing financial conditions and supporting the recovery from the recession is to ease the current financial tightening. The best way to achieve this is to keep policy tight and publicly commit to reaching the 2% target at all costs.
A hawkish approach to monetary policy can kill two birds with one stone in this situation. Inflation credibility can be restored, and financial conditions will ease, as inflation risk premia get priced out. The BoE should keep rates on hold and prepare the public for the prospect of further hikes.
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The UK economy unexpectedly flatlined in January, stoking concerns over growth amid the global energy price shock triggered by the US-Israel war on Iran.
Figures from the Office for National Statistics (ONS) showed 0% growth in gross domestic product (GDP), down from an increase of 0.1% in December, as the economy failed to recover from uncertainty surrounding the chancellor Rachel Reeves’s autumn budget.
Falling significantly short of City predictions for growth of 0.2%, the figures came as the UK and other countries faced a potentially severe economic hit as the Middle East conflict drove up oil and gas prices, hitting consumers with higher living costs.
The pound fell against the US dollar after the figures were released, to a three-month low.
In a fresh blow to the government’s growth ambitions after a challenging start to the year, output in the service sector flatlined amid falls in recruitment activity and the hospitality sector.
One eoconomist warned that the oil crisis could drive the UK economy into a recession this year, although others were less pessimistic.
There was gloomy GDP news from the US too, where the economy only grew half as fast as initially estimated in the last quarter of 2025.
US GDP rose at an annual rate of 0.7% in October-December 2025, new data from the US Bureau of Economic Analysis shows. That’s the equivalent of less than 0.2% growth in the quarter.
The trade body for the UK’s petrol station industry has got into a row with the government after claiming the “inflammatory language” used by ministers to describe rising pump prices may have incited abuse against forecourt staff.
The Petrol Retailers Association (PRA) said ministers had for several days suggested that forecourts might be “price gouging” and “ripping off” motorists as global oil markets have surged in response to the war in Iran.
Owners of SUVs could face charges to drive in London, after the mayor and transport authorities said they were reviewing the increased danger posed by larger, heavier cars…..
…. And London mayor Sadiq Khan has said he would be encouraging the Met to abandon his armoured car in favour of a smaller vehicle.
Ed Miliband has unveiled plans that could make it easier to build nuclear power plants closer to homes and on sensitive nature sites, as he attempts to speed up the development of energy infrastructure.
Updated at 12.57 EDT
Benchmark UK government bond prices are weakening this afternoon, pushing up the yield (or interest rate) on the debt.
The 10-year gilt yield is up 5 basis points (0.05 percentage points) today, on track for its highest daily close since January 2025, Reuters points out.
Updated at 12.50 EDT
FTSE 100 posts second weekly drop in a row
After another volatile week, the UK’s stock market has closed with a fall today.
The FTSE 100 index has closed down 44 points, or 0.43%, at 10,261 points tonight.
That means it has lost around 0.23% this week, after losses every day except Tuesday (when it jumped by 1.6%).
That’s the second weekly fall in a row, after a 5.7% tumble in the first week of the Iran war.
ShareRAC: average petrol price at 18-month high
The average UK petrol price has hit an 18-month high, data from motoring group the RAC shows.
According to the RAC, the average price of a litre of petrol has risen to 140.60p, up from 132.8p the day the Iranian war began.
Diesel is now being sold at an average of 159.18p, up from 142.38p two weeks ago.
RAC head of policy Simon Williams says:
double quotation mark“Households, especially those that depend on the car, are under increasing financial pressure as a result of the conflict in the Gulf. The average price of a litre of unleaded has now risen by 6%, or nearly 8p, to 140.6p since the start of the conflict and is it at its highest in 18 months. Diesel has rocketed by 12% – or almost 17p – to 159.2p a litre, a price we’ve not seen since November 2023. Filling a family car is now £4 and £9 more than it was less than two weeks ago.
A table showing UK petrol and diesel prices Photograph: RAC
Williams adds:
double quotation mark“The fact the cost of a barrel of oil has exceeded $100 and wholesale fuel prices continue to rise is concerning, but it’s the speed at which drivers are feeling the effects which is under the spotlight now.
Drivers deserve – and should expect – to be treated fairly when it comes to filling up, especially with pump prices still heading north. We therefore hope the meeting between the fuel industry and government on this important issue is productive.
Reminder: that meeting should be taking place today:
SharePound hits three-month low
The pound is continuing to have a bad day, after this morning’s GDP data showed the UK’s economy didn’t grow in January.
Sterling is now down a whole cent, and traded as low as $1.3228, its lowest since 3 December.
This is mainly driven by the strength of the dollar, with the pound pretty flat against the euro today.
Updated at 12.05 EDT
US-Iran war could drive up sulphuric acid prices
The Iran conflict could disrupt supplies of sulphuric acid, which plays an important role in the base metals market.
Natixis CIB Research have warned this week that the war could tighten the market further as Middle Eastern producers account for around a quarter of global sulphur supply.
This sulphur is produced through oil and gas refining, and then turned into sulphuric acid, which is itself used to extract metals such as copper and nickel from their ores.
Natixis analyst Bernard Dahdah explains:
double quotation markSulphuric acid is particularly important for the base metals market. It is a key reagent in hydrometallurgy and leaching, particularly for extracting metals such as copper, nickel, uranium and REE.
Sulphuric acid is mainly produced from elemental sulphur (the feedstock) which mostly comes from oil and gas refining along with gas processing. Over the past two and half years prices have risen by around 500% mainly due to a surge in nickel HPAL.
In September of last year, Ukraine successfully targeted Russia’s Astrakhan processing gas plant.
As Russia stopped the export of sulphur, prices almost doubled by the end of 2025. The war between the US/Israel and Iran has exacerbated the tightness in supply as the Middle East accounts for almost a quarter (around 84 Mt) of the world’s sulphur production.
Photograph: Naxitis/BloombergShare
Quite a row has blown up between Britain’s petrol retailers and the government today.
Earlier today the Petrol Retailers Association (PRA) said it has withdrawn from a meeting with chancellor Rachel Reeves in Downing Street today over “concerns that inflammatory language by government ministers was leading to incidents of retail staff being abused by members of the public”.
But the PRA have now pulled a u-turn.
The PA news agency has reported that the PRA will attend the meeting with Reeves, and has deleted a series of posts on X in which it said it had pulled out over concerns that “inflammatory language” from ministers had led to retail staff being abused by the public.
Our Politics Live blog has all the details:
UK household energy bills are likely to jump this summer unless oil and gas bills ease back towards their pre-Iran war levels.
Consultancy Cornwall Insight now estimates that the UK energy price cap will rise to £1,827 per year for a typical duel fuel consumer is £1,827 in July, when it is next due to be set.
The cap is due to fall to £1,641 a year in April, a drop of 7%.
ShareA chart showing US gasoline price expectations Illustration: University of MichiganShareUS consumer sentiment hit by Iran war
American consumer morale has dropped this month, as the Iranian war drives up fuel costs.
The University of Michigan’s monthly gauge of consumer sentiment has dropped to 55.5 points this month, down from 56.6 in February.
People grew gloomier after the conflict in the Middle East began.
Surveys of Consumers director Joanne Hsu explains:
double quotation markConsumer sentiment dipped about 2%, reaching its lowest reading of the year. Interviews completed prior to the military action in Iran showed an improvement in sentiment from last month, but lower readings seen during the nine days thereafter completely erased those initial gains.
Gasoline prices have exerted the most immediate impact felt by consumers, though the magnitude of passthrough to other prices remains highly uncertain. A broad swath of consumers across incomes, age, and political affiliation all reported declines in expectations for their personal finances, down 7.5% nationally.
Interviews for this release were collected between February 17 and March 9, with about half completed after the start of the US military conflict in Iran.
Wall Street has opened higher
The Dow Jones industrial average has gained 395 points, or 0.85%, in early trading to reach 47,073 points, with most stocks rising.
The broader S&P 500 share index is up 0.8%, as has the tech-focused Nasdaq.
A report in the Financial Times today that European countries including France have opened talks with Tehran seeking to negotiate a deal to guarantee safe passage for their ships through the Strait of Hormuz may be calming jitters about the Middle East.
ShareMotor City motorists feel pinch as gas prices surge
Motorists in Michigan are irked that the Iranian conflict has driven up their gasoline bills, my colleague Tom Perkins reports from Detroit:
double quotation markOn a rainy Detroit afternoon at a gas station off Interstate 75, Victor Rodriguez watched the pump tally tick up as he filled up his F-250 diesel pickup truck for $4.19 per gallon. It totaled $110. “Ridiculous,” he said.
The US-Israel war on Iran has crippled major portions of the oil supply chain, sending gas prices soaring as the conflict enters its third week. Rodriguez said he supports “getting rid of this thug”, referring to Iran’s Ayatollah Ali Khamenei, who was killed by the US, but the cost is too high.
Rodriguez said he jumped off the freeway while returning from an airport drop-off because he saw diesel advertised for $4.19 per gallon. The high price is a deal compared with the $5.00 per gallon he saw in Romeo, an exurb where he lives about a half-hour drive north.
“Nothing is worth higher gas prices, obviously,” Rodriguez said.
ShareSeven in 10 Americans say Trump’s tariffs caused higher prices
Seven in 10 Americans say Donald Trump’s tariffs have led to them paying higher prices, according to an exclusive new poll for the Guardian.
The Harris Poll survey presents Republicans with a major problem in the battle for the upcoming midterm elections. The majority of all voters (72%) believe Trump’s tariffs have had a negative rather than a positive impact and 67% said tariffs aren’t the right solution for improving the economy.
Here’s the full story:
Here’s Richard Carter, head of fixed interest research at Quilter Cheviot, on today’s US GDP report:
double quotation mark“The latest US GDP estimate has halved the annualised rate of growth for the fourth quarter from 1.4% to 0.7%. Indeed, the rate for the whole of 2025 was revised downwards too, indicating that the US economy is slowing more than expected, and that perhaps both consumer and business confidence is weaker than hoped. This data gives a good indication of the health of the US economy in the lead up to the Iranian conflict.
“Given the strength of US energy security, it is insulated somewhat from the energy price shock being experienced in global economies right now, but regardless there will still be an impact. The US is doing all it can to mitigate against the rising oil price, knowing that it will push inflation up and prove to be a brake on the economy. The worry here is that stagflationary effects can become clearer, making the job of the Federal Reserve incredibly difficult. Such weak growth would usually result in rate cuts becoming apparent, but events in the Middle East mean we are more likely to be back in a holding pattern, waiting for clear signs that either the conflict will end or will drag on for years. For now that certainty is not available.
Updated at 09.14 EDT
Donald Trump won’t be happy with today’s updated GDP report.
As well as halving growth in Q4 2025, the BEA has also lowered its estimate for growth during the year.
Real GDP is now estimated to have increased 2.1%, revised down 0.1 percentage point from the previous estimate. The increase in real GDP in 2025 primarily reflected increases in consumer spending and investment.
ShareUS economic growth revised down
Newsflash: The US economy only grew half as fast as initially estimated in the last quarter of 2025.
US GDP rose at an annual rate of 0.7% in October-December 2025, new data from the US Bureau of Economic Analysis shows. That’s the equivalent of less than 0.2% growth in the quarter.
The BEA had initially estimated annualised growth of 1.4% in Q4 2025, which was already a slodown after 4.4% growth in Q3.
Today, the Bureau says it has revised down its estimate of US exports, consumer spending, government spending, and investment in the quarter.
Although this data is somewhat historic, it shows the American economy had less momentum than we thought as it enters the energy shock caused by the Iran war.
Updated at 08.55 EDT
Hopes of UK mortgage rates steadily easing have “collapsed”, with at least 530 homeowner mortgage deals having vanished from the market since Monday, according to a financial information website.
Moneyfacts said the number of mortgages disappearing from the market since then represents about 7.5% of deals, PA Media reports.
Some average mortgage rates have already broken through the 5% mark amid changing financial markets, and Moneyfacts said earlier this week that mortgage deals have been withdrawn at the fastest pace since the 2022 mini-budget.
Adam French, Head of Consumer Finance at Moneyfacts, explains:
double quotation mark“At least 530 residential mortgage products have been withdrawn since Monday 9 March, representing around 7.5% of the market, although the pace of withdrawals has slowed as the week has progressed.
“Borrowers are now seeing the effect as these changes feed through to pricing, with the average two-year residential mortgage rate rising to 5.10%, up from 4.87% on Monday and now at its highest level since July 2025, while the average five-year rate has climbed to 5.19%, up from 4.98% and at its highest since April 2025.
“Even the very cheapest deals are shooting higher, with the lowest available mortgage rate climbing from 3.51% at the start of March to sit at 3.78% today, its highest level since April 2025.
“It’s unwelcome news for borrowers, as hopes of steadily falling mortgage rates have collapsed and given way to a much more uncertain outlook. The destination is now heavily dependent on how global markets and inflation expectations evolve in response to the conflict the Middle East.”
Updated at 08.17 EDT
Oil prices are now dipping slightly, following reports that an Indian tanker has sailed out of the Strait of Hormuz.
Brent crude is now down 1% today at $99.50 a barrel, having earlier today traded as high as $102.75 a barrel.
An Indian government official said that an India-flagged oil tanker – the Jag Prakesh – had moved out from the east of the Strait of Hormuz carrying gasoline bound for Africa.
Neil Wilson, Saxo UK investor strategist, says:
double quotation markCrude oil prices dipped by around -2% after India stated it has an oil tanker moving out of the Strait of Hormuz. Brent slipped below $99/barrel.
Too early to comment or speculate on what this means but markets are still very much trading the headlines and keen to latch on to any shred of good news. Expect this to be faded.
My LSEG screen shows the Jag Prakesh was moving south at 8.6 knots last night, the last time its position was recorded, having travelled on the east-hand side of the strait in recent days, rather than passing through it.
Photograph: LSEGShare
Updated at 12.03 EDT
Oxford Economics: $140 oil could trigger mild UK recession
Oil would probably have to rise higher, and stay there, to push the UK into a recession.
Consultancy Oxford Economics have calculated that if oil rises to $140 a barrel, then UK inflation could top 5% in Q4 2026. This could cause the Bank of England to hike interest rates again, and the UK would likely suffer a mild recession.
“Given the significant uncertainty around how the conflict will evolve, we’ve published two alternative scenarios,” says their chief UK economist Andrew Goodwin, adding:
double quotation mark“The first assumes oil and European gas prices rise more than we anticipate in Q2, with oil averaging $100 per barrel. The second sees oil hitting $140 a barrel along with a bigger spike in gas prices.”
“In both scenarios, the main transmission channel to the economy is through higher inflation.
Daily data from RAC suggests petrol prices have already risen sharply over the past two weeks. Domestic energy bills would also rise substantially in July, when the next change in the energy price cap comes into force.”