The economic fallout from war in the Middle East Part II • Resolution Foundation This second event will focus on the wider outlook for the economic and public finances. How much might the war reduce the UK’s growth prospects? What fresh policy support might be needed in the face o...

And do log onto our event discussing all this with Michael Saunders, Liz Martins and Tej Parikh: www.resolutionfoundation.org/events/the-e...

The Macroeconomic Policy Outlook Q2 2026 • Resolution Foundation Since the US-Israeli strikes on Iran began nearly two months ago, global energy markets have been volatile. But the shock facing Britain has so far been smaller than that which followed Russia’s invas...

For more on how policy makers should respond to the war, see our new piece out this morning: www.resolutionfoundation.org/publications... (h/t @simonpittaway.bsky.social & Greg Thwaites)

And our view is that the much looser labour market than we had in 2022 means the BoE does not need to rush into raising rates.

The reality is that the Government doesn't have the fiscal space for the type of unlimited and universal support we saw after Russia's invasion of Ukraine. That said, we estimate gov's bigger headroom wd be enough to withstand a £16bn hit to the public finances from the war.

Power struggle • Resolution Foundation Conflict in the Middle East has driven oil prices from around $70 to $100 per barrel, with wholesale gas prices also rising by over 60 per cent. The duration and severity of the ongoing war are uncert...

The good news is that the Government has the power to ease the impact of the cost of living shock. Here they shd move quickly to prepare targeted support on energy bills. More on how to do that: www.resolutionfoundation.org/publications...

What might inflation of roughly this magnitude do to living standards? We have estimated an illustrative impact which shows an impact on typical incomes of around £500, with what was supposed to be a good year for income growth turning into something more disappointing.

Inflation is now expected to remain around 3½% for much of the year. This is basically a continuation of recent inflation and in that sense isn't a disaster. But with inflation prev expected to fall back to 2% and risks that inflation cd rise further, this is worrying for struggling families.

One more point on today's data where there was a disappointing signs on underlying inflation. There are some erratics here but services inflation is clearly above where the BoE expected. This one to watch as a very big fall is expected next month...

So the prices of essentials are set to rise further. This chart just reminds you that this comes on top of a very big rise in the cost of many essentials.

Over time, higher energy costs will bleed into the prices of other things we buy. A key area is food prices where we estimate the pass through from higher commodity prices to consumer prices takes about a year. This is another key area for struggling families who spend more on such essentials.

Unfortunately, the good news on UK inflation isn't likely to last. The next place the impact will be felt is on energy bills. These are about to fall in April but will almost certainly rise in July. The extent of the rise is uncertain with this chart showing a range of possibilities.

In the UK, petrol (along with heating oil) are the only bits of inflation significantly affected by war in the middle east. Energy bills are largely protected by the price cap (for now at least), so the rise in UK inflation is less than the US or euro area and we are no longer the inflation outlier!

Lets focus on petrol as this is the fastest moving energy price. You can see that prices have risen further since March (by about 12% to 158p, with bigger increases in diesel). So we are going to get another inflation bump next month from this source.

No prizes for guessing what has dominated this month - petrol prices jumped from 132p to 140p on average in March pushing up transport inflation (along with an Easter bump in our old friend airfares). Fuel oil is also pushing domestic bills category with a near doubling in prices.

Here are headline UK inflation rates. You can see CPI inflation has blipped up again in March to 3.3% (from 3.0% in February), in line with market expectations. So nothing dramatic at this stage but further rises are in train...

New inflation data out this morning are the first to be affected by war in the middle east. CPI inflation was 3.3% in March, up from 3.0% in February, mainly driven by rises in petrol prices. Further increases in inflation are on the way. Short thread on where we are headed to follow...

All the details of this morning's conflicting labour market stats wrapped up in one handy thread from @hannahslaughter.bsky.social, @louisemurphy.bsky.social and @jametg.bsky.social 👏👏👏

Good work from @resolutionfoundation.org colleagues in pushing for changes to energy pricing:

Some facts behind all the debate on what is happening in the mortgage market right now.

I may be hopelessly biased but this is a great piece of working trying to spark debate about the impact of seemingly opaque financial regulation on younger and poorer families. @simonpittaway.bsky.social & Hannah Aldridge. 👏👏👏

Not too late to sign up to tomorrow great event on the housing market:

Overall, then, 3% inflation in February is very much yesterday's news. The big issue we all face (and one policymakers should be grappling with now) is where inflation goes from here. The outlook is not good but there's a lot the government can do to ease the impact on struggling families.

Power struggle • Resolution Foundation Conflict in the Middle East has driven oil prices from around $70 to $100 per barrel, with wholesale gas prices also rising by over 60 per cent. The duration and severity of the ongoing war are uncert...

This chart shows the distributional impact of a ~£4bn social tariff (exact size shd depend on the rise in bills) that wd provide avg support of £310 for the poorest 10th of households, rising to £520 for those with high energy needs. For more, see: www.resolutionfoundation.org/publications...

The best way for the govt to respond to higher energy bills given stretched public finances is to target those on lower incomes AND higher energy use -i.e. implement a social tariff. Work must start on that now. Positive that the Chancellor said this is consistent with the govt's approach yesterday.

Who knows where energy bills will be by next winter, but this chart shows you that if they were to rise by £500 (this is extreme, but not impossible - Cornwall Insight have said ~£330, for example), we would be back to levels when very significant support was offered to families in 2022.

...but it is also because petrol prices have been falling and in relative terms is below pre-pandemic levels. The situation is very different for energy bills. Those have gone up A LOT and despite the April fall, prospective rises from July could lead to significant hardship.

Those calling for a freeze in Fuel Duty *in September* are completely missing what's going on. Petrol prices are going up now (and we don't know where they'll be in Sep). Petrol in general is not the place for the govt to act, tho. Thats partly because richer families buy more petrol (see chart)...

Higher petrol prices will now kick in from next month and the BoE has said that it expects inflation to rise to ~3.5%. It has also said that inflation is set to stick around that level rather than falling back to 2%. This is a miserable outlook for families aleady struggling with the cost of living.

The most obvious place conflict in the Middle East is showing up is in oil prices. Prices have been volatile and for periods over $100pb. That has translated into a sharp rise in the price of petrol (and particularly) diesel. This happens quickly but a further rise to over £1.50p/ litre is expected.

Both goods and services inflation *had* been falling back to historical norms and overall inflation was previously expected to drop back to the 2% target in April. The war in Iran has put paid to that...