“Higher energy prices as a result of the conflict in the Middle East, have seen consumer sentiment weaken and financial conditions tighten ahead of expectations of higher inflation. While energy prices have fallen back from their peak amid growing hopes of a resolution to the conflict, it will take time for shipping activity and energy production to normalise. As a result, we expect higher energy costs and supply chain disruptions to weigh on growth for much of the second quarter of this year.
“Businesses have been hit by a double whammy of higher energy and borrowing costs, with the latter driven by market expectations of rate hikes by the Bank of England later this year. Firms are likely to respond by delaying or scaling back investment plans, as well as passing on some of their costs to consumers. This will constrain business investment and likely see household spending slow through 2026.”
“UK growth was robust before the conflict in the Middle East, with the economy expanding by a strong 0.5% in February. However, the adverse impacts of the energy shock will start becoming apparent in the March data, with weaker performance expected at the end of the first quarter.”
