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<\/a><\/p>\n\u201cClearly, there are expectations of a more cautious central bank facing a potential reacceleration of inflation over the coming quarters\u2014albeit a temporary one, since energy price shocks are that classic textbook transitory, supply-side shock,\u201d says Morningstar economist Grant Slade.<\/p>\n
\u201cThere\u2019s certainly an open question as to how high energy prices go in the near term, and therefore how significant a supply-side shock this turns out to be. That will determine how much more cautious the Bank of England is in normalizing interest rates in coming quarters.\u201d<\/p>\n<\/p>\n
How the Iran War Could Push UK Inflation Higher<\/p>\n
As a major oil importer, the UK and Europe are likely to feel the inflationary impact of higher energy prices more than other major economies, experts say.<\/p>\n
Economists at Oxford Economics estimate the conflict in the Middle East could add 0.4 percentage points to UK inflation this year.<\/p>\n
But Artemis fixed income manager Liam O\u2019Donnell argues the impact is unlikely to be as dramatic as the inflationary shock witnessed following Russia\u2019s invasion of Ukraine in February 2022, however. The conflict caused an energy supply shock due to Europe\u2019s reliance on Russian gas, which sent UK inflation spiraling to a 41-year high of 11.1% in October 2022.<\/p>\n
\u201cThe MPC and central banks generally were behind the curve back then,\u201d says O\u2019Donnell.<\/p>\n
\u201cWe were coming off the back of an extended period of a post-covid global supply shock. Inflation was 5.5% and rising, and central bankers were just dismissing this as a transitory shock.<\/p>\n
What the Iran War Means for European Inflation and Interest Rates \u201cToday, the central banks have more credibility and we\u2019re in a much better starting position.\u201d<\/p>\n UK inflation has been falling for the past two years, with the latest data for January coming in at 3%. In February 2026, the Bank of England forecast a return to the 2% inflation target by April 2026.<\/p>\n \u201cWe can\u2019t be complacent \u2013 financial conditions could tighten if energy prices continue to rise,\u201d the Artemis manager adds.<\/p>\n \u201cBut the market believes the central banks are alert to the inflation threat so, as serious as this situation is, we don\u2019t see it giving rise to a major macroeconomic shock.\u201d<\/p>\n Will the Bank of England Cut Interest Rates in March?<\/p>\n With the Bank of England previously set to cut before the outbreak of war, ING\u2019s developed markets economist, James Smith, says UK interest rates still have further to fall despite the fresh uncertainty.<\/p>\n Recent Bank of England monetary policy decisions have been decided by a single vote, and Governor Andrew Bailey has previously said decisions are becoming more finely balanced as interest rates approach their terminal level, the end of the current cutting cycle that started in 2024. Uncertainty around the length of the conflict could therefore tip MPC members in favor of a more cautious stance, economists say.<\/p>\n![\"\"](\"https:\/\/www.newsbeep.com\/uk\/wp-content\/uploads\/2026\/03\/4QNXFOMDABDTDN4CZZYW6W4PVM.png\")
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