Nomura analysts have highlighted that the ongoing Iran war is expected to keep UK inflation above the Bank of England's target until mid-2027, significantly impacting the country's economic outlook [1]. According to their analysis, UK GDP growth slowed to 0.1% quarter-on-quarter in both Q3 and Q4 of 2025, with the growth outlook for 2026 (beyond Q1) now weakened due to the war and the resulting uncertainty [1].
The report also notes that market sensitivities, particularly regarding oil prices, play a role in determining the likelihood of future interest rate hikes [1]. In addition to economic factors, early results from the UK local elections indicate strong support for the Reform party and a challenging set of results for Labour, suggesting potential political shifts that could further influence market sentiment [1].
Nomura's forward-looking statements emphasize that inflation is expected to remain persistent, staying above target for an extended period, and that the economic growth outlook remains subdued as long as the geopolitical situation persists [1].
CONCLUSION
Nomura's analysis points to a challenging period ahead for the UK economy, with inflation likely to remain above target until mid-2027 and growth prospects dampened by the Iran war. Political uncertainty, as reflected in early local election results, adds to the cautious market sentiment.