A sustained increase in energy prices, driven by the conflict involving the United States, Israel, and Iran, could raise UK inflation by approximately one percentage point by the end of the year, according to the Office for Budget Responsibility (OBR).
David Miles informed members of the UK Treasury Committee that the impact of the conflict on prices could be “significant” and “completely unwelcome.”
He noted that oil prices are currently about 20% higher than before the escalation of fighting, while gas prices have surged by roughly 50%.
This increase raises the risk of renewed inflationary pressure on the UK economy.
This warning followed the OBR’s release of updated economic forecasts alongside the Chancellor’s spring statement, indicating that global energy markets remain highly sensitive to geopolitical tensions.
Miles said: “If there’s no change in the picture on prices from now on forward, we estimate something like a 1% higher level of consumer prices in the UK by the end of the year.
“We had thought, without taking all this into account, that the inflation rate in the UK might be pretty close to 2%
“Right now, if prices don’t change from where they are – both the spot and market expectations for futures prices, which is particularly important for the Ofgem price cap – by the end of this year we think the inflation rate would end the year not near 2% but nearer 3%.
“Material, significant, as yet not on the same scale as we experienced after Russian invasion of Ukraine.
“Enough to be noticeable and completely unwelcome, because there’s no upside to all this.
“I’d have given you a different answer probably yesterday morning, and by the end of the week it could look different again. It’s not clear which way we go from here.”
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