9th March 2026
Rising oil and gas prices are pushing UK inflation risks back up, and this is likely to delay interest‑rate cuts with some forecasts even warning rates could rise above 4% again. Growth forecasts for 2026 have already been cut, with the UK expected to slow to around 1.1% as energy‑driven shocks weigh on households and businesses.
These pressures are especially relevant in Scotland, where energy‑sector volatility directly affects local employment and investment.
UK Interest Rate Outlook (2026)
Rising oil & gas prices = higher inflation risk
The Iran-Middle East conflict has pushed oil and gas sharply higher, creating a new inflation shock.
UK government bond yields have jumped as markets scale back expectations of near‑term rate cuts.
Forecasts from economists
Some economists now warn that interest rates could rise back above 4% if the energy shock persists.
Current base rate: 3.75% (held in February).
Markets still expect at least one cut in 2026, but forecasts vary widely:
Some expect cuts to 3.25% by year‑end.
Others warn rates could rise above 4% instead.
High oil and gas prices make rate cuts less likely, and the Bank of England may even tighten policy again if inflation rebounds.
UK Growth Outlook
Growth forecasts have already been downgraded
The UK government cut its 2026 growth forecast to 1.1%, citing the Iran conflict and rising energy prices as major risks.
The Spring Statement confirmed that growth will slow and unemployment will rise in 2026.
Why growth is weakening
Higher energy costs squeeze household spending.
Businesses face rising fuel, transport, and input costs.
Uncertainty in global markets reduces investment appetite.
Sector‑specific concerns
Farming and agriculture face higher fuel and fertiliser costs.
Construction and manufacturing face higher materials and energy bills.