⦿ Executive Snapshot

• What: Nomura's analysts predict that the ongoing Iran war will keep UK inflation elevated and negatively impact growth forecasts.
• Who: Nomura analysts, UK government, local election participants, and the Labour party.
• Why it matters: The persistent inflation and weakened growth outlook could influence monetary policy and economic stability in the UK.

⦿ Key Developments

• UK inflation is expected to remain above target until mid-2027, primarily due to the Iran war.
• UK GDP growth has decelerated to 0.1% quarter-on-quarter in both Q3 and Q4 of 2025.
• The growth outlook for 2026 is projected to weaken further beyond the first quarter due to the uncertainties arising from the Iran war.
• Early local election results indicate strong support for the Reform party, presenting challenges for the Labour party.
• Analysts are considering market sensitivities regarding potential interest rate hikes linked to fluctuating oil prices.

⦿ Strategic Context

• The ongoing conflict in Iran is creating geopolitical tensions that directly affect economic indicators such as inflation and growth rates in the UK.
• Historical trends show that external conflicts often correlate with domestic economic challenges, highlighting the vulnerability of the UK economy to international events.

⦿ Strategic Implications

• The immediate consequence includes potential adjustments in UK monetary policy to address persistent inflation, impacting borrowing costs and economic activity.
• Long-term implications may involve shifts in political dynamics and public sentiment, particularly regarding the Labour party's positioning in future elections.

⦿ Risks & Constraints

• There is a risk of regulatory or economic roadblocks if inflation remains unmanageable, impacting consumer spending and investment.
• Competition from emerging political parties like Reform could disrupt the traditional political landscape and influence policy-making.

⦿ Watchlist / Forward Signals

• Upcoming economic data releases and further local election results will be critical in assessing the trajectory of UK inflation and growth.
• Future developments in the Iran conflict will significantly influence oil prices and, consequently, the UK economic outlook and interest rate decisions.