Assessing the effects of an extreme war scenario

In this Update, we explore an extreme scenario in which the Iran war escalates beyond the assumptions in our published baseline and adverse scenarios. With Brent crude jumping higher and staying at around $150pb into 2027, we estimate that inflation would rise close to 10% in the euro-zone and UK. Central banks would probably respond by raising interest rates towards their recent peaks. But they might reverse course before long as soaring energy prices and supply shortages tip economies into recession.