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Thu, 19 Mar 2026

Thu, 19 Mar 2026 Faisal Islam: Iran war is having a dramatic effect on the UK economy

The knock-on effects of the war in the Gulf go beyond a hold on interest rates and are set to reverberate for months.

* Despite no Iranian gas being exported to the UK, the conflict has caused a rapid ripple effect in the mortgage markets.
* The Bank of England's decision to hold interest rates at 3.75% was seen as an overreaction by investors, who were betting on rate hikes.
* Inflation is now expected to rise to 3.5% or higher due to the spike in oil and gas prices, rather than falling to 2%.
* The Bank's governor warned against "getting ahead" of themselves with assumptions about multiple interest rate rises, saying they will reassess the situation at their next meeting.
* Policymakers are now in a "wait and see" mode, unable to address the root cause of the inflationary shock through monetary policy.
* The war has already had significant impacts on the UK economy, including: + Overturning expectations for a rate cut + Sending inflation off course + Yanking up effective interest rates paid by government + Leading to a fundamental repricing of fixed-rate mortgages.