An anticipated fallout from the conflict in the Middle East could lead to significant repercussions for the UK economy, experts caution. Oxford Economics consultants project that businesses will bear the brunt, resulting in a potential increase in unemployment by 0.5%, equivalent to approximately 150,000 lost jobs. In addition, inflation is expected to surge to 4.5%, a notable leap from the 3.3% recorded earlier this year according to the Office for National Statistics, surpassing the Bank of England’s earlier forecast of 3.5%.

Michael Saunders, a seasoned advisor at Oxford Economics and former Bank of England rate-setter, expressed a grim economic outlook, stating, “Even if the conflict were to end soon, the economic forecast remains bleak.” He highlighted concerns over the strain on household finances due to rising fuel and other expenses, estimating that the average household could face a £730 annual shortfall compared to initial projections for this year, with potential for further deterioration if the conflict prolongs.

The ripple effects of the crisis are expected to extend beyond immediate energy cost hikes, leading to secondary impacts such as increased wage demands by workers to counter anticipated inflation. The Bank of England, set to convene next week for its Monetary Policy Committee meeting, will weigh these factors, particularly people’s inflation expectations, in deciding whether to adjust the current base rate of 3.75%.

Saunders suggested a potential rate hike to 4.25% later in the year, especially if inflation climbs to 4% by July as predicted. However, differing opinions exist among economists regarding the likelihood of such a move. Liz Martins, senior UK economist at HSBC, expressed a more conservative view, suggesting that inflation may only rise to around 3.5%.

Simultaneously, the Resolution Foundation projected that the Middle East conflict-induced energy shock could collectively cost UK households £11 billion in the current year.