Bulletin: Market impacts, as Middle East conflict grows

Middle East conflict continues

Renewed conflict in the Middle East is already pushing up oil and gas prices, following damage to oil and gas infrastructure and multiple vessels being struck by ordnance in the Persian Gulf region.

Global oil and gas prices have responded quickly and, at time of writing, oil prices are fluctuating between US$90 to US$120 per barrel, up from US$60 to US$70 before fighting began.

The UK and other members of the IEA have promised to release up to 400 million barrels of oil from strategic stocks, hoping to reduce volatility and calm markets.

See the latest article Oil and gas prices, conflict, and UK food inflation.

IGD opinion

This is a major move, but 400m barrels represents only a few days of global use, so it is not clear how much effect it will have.

Rising gas prices are of particular concern for the food and drink supply chain, as gas is a key input into fertiliser production.

UK farmers apply fertiliser in Spring (with possible further use later in the year). Hopefully, most will have secured supplies for the current season before fighting began, but there are concerns for the possible price of future deliveries.

Inflation outlook worsens

David Miles, a member of the Office for Budget Responsibility’s (OBR) Budget Responsibility Committee, warned MPs this week that renewed conflict in the Middle East could add around 1.0% to UK “all items” inflation, if higher energy prices persist.

Speaking to the Commons Treasury Committee, Professor Miles said oil prices were around 20% higher and gas prices around 50% higher than before the escalation, and that - if prices remain at current levels - UK inflation could end the year closer to 3% than 2%.

IGD opinion

In the Economic & Fiscal Outlook report issued on 03 March, OBR suggested that “all items” inflation would be 2.3% in 2026 by the CPI method (or 3.1% by the RPI method). Adding 1.0% to these estimates would be a substantial shift and could easily be enough to impact government finances.

Many benefits are inflation linked, meaning higher inflation could push annual upratings well beyond what has been planned for. Some government revenues also rise with inflation: VAT receipts on fuel, for example, will vary with pump prices, so higher motor fuel prices could deliver a small windfall.

Higher inflation stemming from renewed conflict would also likely delay a return to the government’s inflation target and therefore make further base interest rate cuts less likely.

Professor Miles’ comments follow only a week after the publication of the latest EFO report, underlining the difficulty of forecasting in such a chaotic geopolitical environment. IGD’s most recent inflation forecast for food suggested that food inflation in 2026 would be 3.3 - 4.3% in 2026.

Food prices are strongly influenced by energy costs and if higher energy prices are sustained this forecast could be derailed. While it is too early to be definitive, conflict in the Middle East raises the likelihood that food inflation will come in at the upper end of this range.

Threat: rising energy price risks

The Energy Price Cap is set to fall from April to June 2026, with a typical household seeing bills fall by around 7%.

However, renewed volatility in oil and gas markets has increased the risk that wholesale energy prices rise later this year. The price cap is reset quarterly and reflects these movements, meaning any sustained increase in energy costs could feed through into higher household bills in future periods rather than immediately.

IGD opinion

The decline in the Price Cap in April is good news, although most households use less energy for heating in Spring and Summer, so the immediate benefit may be modest.

If higher wholesale prices persist, the impact is more likely to be felt next winter, when energy demand peaks. This would place renewed pressure on household finances and increase the risk that energy costs add to inflationary pressures at a sensitive point for consumers.

Food job vacancies

With nearly 1 million young adults  not in education, employment or training ( NEET) and that number rising, the UK food and drink system stands out as a large and accessible source of jobs. 

At the same time, the food and drink supply chain continues to recruit to meet both current and future needs. The sector employs around 4.1 million people – around one in eight UK jobs – and jobs are present across the whole UK, making them accessible, even to those struggling to enter the labour market

There is a clear opportunity to bring together those currently not in work – especially young adults – with food and drink employers.

See the latest article Food and drink jobs: A national opportunity.

IGD opinion

The food and drink system’s scale and national footprint make it unusually well placed to help address both labour shortages and wider labour‑market exclusion. However, sustaining this opportunity will depend not just on filling vacancies, but on retaining workers, improving productivity and building new skills as workforce pressures continue to evolve.

EU/UK agreement on SPS checks

The UK and EU are moving closer to a Sanitary and Phytosanitary (SPS) deal that could reduce friction at the border for food and drink businesses, following a prolonged period of negotiation. This relates to the  movement of animals, plants and their products over the UK / EU border.

A deal is not yet done, but the UK government has announced that the UK will “dynamically align” relevant SPS regulations with the EU and has instructed businesses to prepare for this by mid-2027.

Dynamic alignment would mean that changes to EU SPS rules would be mirrored in Great Britain. This will affect all UK food businesses, irrespective of whether they trade with the EU.

Further details may change as negotiations continue. Northern Ireland is already aligned with EU SPS rules under the Windsor Framework.

IGD opinion

The UK has a trade deal with the EU which covers food and drink. This trade is tariff free, but still requires businesses to comply with administrative rules, physical checks and other requirements, so it is not frictionless.

The proposed deal will, in theory, reduce friction, which will be helpful for businesses. However, the UK has a persistent trade deficit in food with the EU. So, the bulk of any benefit is likely to be felt by UK importers, rather than exporters.

The new deal will require ongoing regulatory action by most UK food businesses, other than those in Northern Ireland rather than a one-off adjustment.

GDP up marginally

Provisional ONS data for 3 months ending January 2026, shows that economic output is strengthening, very gradually. Real growth for the period was 0.2%, up from 0.1% in the 3 months to December 2025 and 0.0% in the 3 months to November 2025.

IGD opinion

This expansion is obviously welcome, although it is rather weak and the UK economy continues to rely heavily on population growth, rather than improved productivity, in order to make gains.