As the Iran war continues, UK Chancellor John Healey warns against profiteering while economic forecasts predict potential recession and market volatility
The ongoing conflict in the Middle East is casting a long shadow over the UK’s economic stability. Chancellor John Healey has issued a stern warning to retailers, cautioning against price gouging as the war’s impact on energy prices and inflation deepens the cost of living crisis.
Healey’s remarks come at a critical juncture, as the Bank of England has signaled that further escalation could push inflation above 4% next year. The economic fallout from the conflict is far-reaching, affecting everything from household budgets to business investments.
Economic Forecasts and Recession Risks
A recent report by EY paints a sobering picture of the UK’s economic prospects. If the Strait of Hormuz remains closed into 2027, the report warns of a potential recession, with GDP growth slowing to 0.5% this year and contracting by 0.2% next year.
This scenario is driven by surging oil and energy prices, which could send inflation soaring to 6.4% by the end of 2026.
However, there is a glimmer of hope. If the strait reopens by the end of the third quarter of this year, EY’s base case forecast suggests a more resilient outlook, with growth of 0.9% in 2026 and 1.2% in 2027. The report also anticipates interest rates remaining at 3.75% for the rest of 2026, with cuts expected in April and July of next year.
Market Reactions and Consumer Impact
The economic uncertainty has not gone unnoticed by markets. Crude oil prices fell sharply after Donald Trump canceled planned strikes on Iran, with Brent crude trading 5% lower at $83.47 a barrel. This drop in oil prices is expected to ease inflation fears and support market stability.
However, the impact on consumers is immediate. Fuel prices for UK motorists continued to rise over the weekend, with petrol hitting an Iran-war high of 160.85p a litre. The motoring group RAC predicts that prices at the pump should begin to stabilize this week, though diesel could reach 185p over the next week.
Government and Retailer Tensions
Healey’s comments have sparked a war of words between the government and retailers. Earlier this year, former Chancellor Rachel Reeves raised the prospect of a cap on food prices to limit inflation caused by the Middle East conflict. This proposal was met with strong opposition from supermarket bosses, with Marks & Spencer’s chief executive calling the plans “completely preposterous”.
The British Retail Consortium has suggested that the government should focus on the effect of tax increases, including employers’ national insurance and business rates, on inflation. Andrew Opie of the BRC emphasized that supermarkets operate in a highly competitive environment, delivering the most affordable food in Western Europe.
The economic challenges posed by the Iran war are complex and far-reaching. As the conflict continues, the UK must navigate a delicate balance between supporting economic resilience and ensuring fair pricing for consumers.
