UK outlook slashed as oil and gilt yields soar on Iran turmoil: Lloyds warns of stagflation as market jolted by blockade fears
Lloyds slashed its UK economic forecasts yesterday as a fresh surge in oil prices and borrowing costs, as well as a stock market sell-off, deepened gloom caused by the Iran war.The country’s largest domestic lender warned that the ‘stagflationary consequences’ of the conflict could last well into next year.Lloyds expects unemployment and inflation to be higher, and growth slower, than previously thought because of an energy shock that has sent oil and gas prices soaring.Markets were further jolted yesterday as it emerged that Donald Trump has discussed the possibility that the US blockade of Iran could last for months.That sent the price of a barrel of Brent crude soaring close to $120, the highest level of the war so far.And yields on UK ten-year bonds, known as gilts, neared 5.1 per cent. That left borrowing costs on course for their highest level since the 2008 financial crisis. Oil crisis: Markets were further jolted yesterday as it emerged that Donald Trump has discussed the possibility that the US blockade of Iran could last for monthsYields on 30-year gilts also soared above 5.7 per cent to the highest level since 1998.Stocks sold off, with the FTSE 100 down 1.2 per cent, or 119.68 points, at 10,213.11 due to growing evidence of the economic impact of the conflict on the UK.A survey by restructuring specialists Begbies Traynor showed more than 62,000 firms were in ‘critical distress’ at the start of this year, up 37 per cent on last year.And Asda’s income tracker indicated families were £5.32 a week worse off last month compared to February – the first such fall since 2023.Lloyds expects the economy to expand by 0.5 per cent this year compared to a previous projection of 1.2 per cent. It also forecasts that inflation will rise to 3.4 per cent, compared to 2.6 per cent before.The bank predicts that unemployment will peak at 5.6 per cent this year, up from 5.3 per cent, with house price rises halving to just 1 per cent.It also believes interest rate cuts will be delayed until the third quarter of 2027. The worsening forecasts reflected possible ‘stagflationary consequences for the global and UK economies’.Stagflation is a toxic mix of stagnating growth and rising inflation and is likely to hurt consumer confidence, Lloyds finance chief William Chalmers admitted. The lender’s gloom overshadowed further strong results.Pre-tax profits rose by a third to £2billion in the first quarter compared to the same period a year ago as it raked in more from the gap between what it pays savers and charges borrowers.But shares fell 1.5 per cent, or 1.52p, to 97.05p. Rival Santander also downgraded its UK growth outlook for 2026, from 1 per cent to 0.5 per cent, and raised its forecast for unemployment from 4.9 per cent to 5.5 per cent.DIY INVESTING PLATFORMSAJ BellAJ BellEasy investing and ready-made portfoliosHargreaves LansdownHargreaves LansdownFree fund dealing and investment ideasinteractive investorinteractive investorFlat-fee investing from £4.99 per monthFreetradeFreetradeInvesting Isa now free on basic planTrading 212Trading 212Free share dealing and no account feeAffiliate links: If you take out a product This is Money may earn a commission. These deals are chosen by our editorial team, as we think they are worth highlighting. This does not affect our editorial independence.Compare the best investing account for you
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UK outlook slashed as oil and gilt yields soar on Iran turmoil: Lloyds warns of stagflation as market jolted by blockade fears
