Nomura’s analysts see the Iran war keeping UK inflation above target until mid-2027 and weakening the 2026 growth outlook beyond Q1. UK GDP growth slowed to 0.1% q-o-q in both Q3 and Q4 2025. They also flag early local election results showing strong support for Reform and a challenging picture for Labour.

Inflation persistence and softer growth prospects

"We look at what market sensitivities can tell us about the likelihood of interest rate hikes as a function of the level of oil prices."

"There are only limited results from the UK local elections thus far, but they show strong support for Reform and a difficult set of results for Labour."

"We expect UK inflation to be above target until mid-2027 due to the Iran war."

"UK GDP growth slowed to 0.1% q-o-q in both Q3 and Q4 2025, and the 2026 outlook (beyond Q1) has weakened due to the Iran war and associated uncertainty."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)