1、UK Economic and Consumer Outlook in Light of the Iran ConflictMay 2026Economic InsightsExecutive Summary2The UK enters this shock in better shape than it did during the 202223 energy crisis,but not from a position of full strength.The immediate risk is not direct trade exposure to Iran,but a renewed

2、 external shock transmitted through higher energy and freight costs,supply-chain disruption,market volatility,weaker confidence and tighter fiscal constraints.In our central case,this develops into a prolonged tension scenario:inflation remains higher for longer,Bank of England easing is delayed,rea

3、l incomes soften and the next Budget becomes more difficult,but the UK avoids an immediate slide into a severe downturn.The more important macro effect is therefore not a sudden collapse in activity,but a worsening of the trade-offs already facing the economy,with growth remaining modest,inflation p

4、roving more persistent and policy choices becoming harder.For UK firms,the risk is not only higher input costs but also delays,shortages and greater uncertainty around the delivery of key materials and components,adding further strain to an economy already operating with more trade friction than man

5、y continental European peers.Inflation is likely to be the clearest and earliest transmission channel.A sustained period of elevated oil,gas,shipping and insurance costs would slow the UKs disinflation path,lifting petrol and transport costs first and feeding more gradually into food and broader imp

6、orted goods prices if disruption persists.That matters because the UK was already on a gradual path back to target,rather than a rapid one.As a result,the conflict is less likely to create a wholly new inflation regime than to interrupt the improvement that had already begun.For monetary policy,this