WeeklyWatch – Economies take a hit amid conflict

31^st March 2026

Stock Take

Iran conflict marks one month, UK growth outlook down

The Iran conflict is now entering its fifth week, and attention is increasingly turning to how resilient the UK economy would be during a prolonged economic shock.

These concerns have intensified following last week’s revised growth forecast from the Organisation for Economic Co-operation and Development (OECD). They lowered their growth forecast for the UK in 2026 to 0.7%, compared to the 1.3% forecast in December. Out of all the G7 major economies, the UK faced the most severe downgrade.

Additionally, a recent survey conducted by the British Retail Consortium revealed that since the beginning of the Iran conflict, consumer sentiment has taken a nosedive.

Macro noise has been resounding – so much so that when the Office for National Statistics said that UK inflation (measured in CPI) was flat in February, the markets hardly registered the news. However, because the data only covered up to 28^th February, it didn’t carry any of the impact of the Iran conflict.

The economic issues that the UK is facing aren’t unknown. The UK annual GDP growth has been around or just above 1% for a while. Even though inflation has been on a gradual downward trend, it’s still above the 2% target. And ‘stagflation’ could become a reality if higher energy costs increase inflation and stunt GDP growth.

What is stagflation?

When an economy experiences slower growth and both unemployment and inflation are high – all simultaneously – stagflation can happen. The UK isn’t the only country that’s potentially facing this outcome in light of the continuing Iran conflict. In fact, many European nations are facing similar circumstances. And the US could also receive a stagnation shock, despite their faster-growing economy and increased insulation from the current rise in fuel prices.

Central banks are left in a challenging position. Inflation pressures are resurfacing, mostly as a result of higher energy prices, meaning that the banks are more reluctant to cut interest rates. Tighter policy runs the risk of weakening economic growth and causing a stagflationary issue.

The longer the Iran conflict goes on, the higher the likelihood of markets pricing in more tightened measures. In the UK, the markets are expecting the Bank of England’s policy rate to rise to around 4.25% by the end of 2026 – an increase of 1% in comparison to expectations before the conflict.

Should developed market economies fall into stagflation, the Equity Strategist at St. James’s Place, Carlota Lopez, states that US equities could be more exposed than the UK due to higher starting valuations:

“In a stagflationary environment, it becomes much harder to justify the elevated multiples we currently see across US equities. That suggests valuations are more likely to come under pressure. By contrast, valuations in the UK and Europe are less stretched. While the inflation impact could be higher in the UK and Europe because of their higher energy dependence, and these markets could still be affected, on a relative basis, US equities may face greater downside risk, which supports our current positioning across portfolios.”

Stagflation is just one concern. Increased inflation will place more pressure on corporate margins and demand will weaken everywhere. Because of its energy self-sufficiency, the US is more insulated than Europe. Increased energy costs in the latter will affect the bottom line and negatively impact returns.

Despite the advantage, US stocks revealed a similar performance to other global peers in March. The FTSE 100 finished the week down 8.7% since the end of February and the S&P 500 was down 7.4%.

How has the dollar behaved?

US equities claim another advantage over other markets through the resurgent dollar. Prior to the conflict, the currency had been on a downward trend. President Trump’s erratic nature, a constantly changing international scene and investors seeking to reduce exposure to the US had encouraged a softening for the dollar.

As part of the flight to safety since the beginning of the Iran war, investors have demonstrated that there’s still demand for the dollar. Even though the price of gold has fallen from over $5,000 per ounce to under $4,500 since the conflict started, the dollar has moved in the other direction.

Imports are slightly cheaper with a stronger dollar. This, in turn, could help the US with their inflationary pressures. However, it makes US-made products comparatively more expensive to export, which could possibly undermine certain types of US business.

Wealth Check

Investor push to use valuable allowances before end of tax year

Investors are being urged to make full use of their annual allowances before the end of this week, which marks the end of the 2025/26 tax year.

The Head of Advice at St. James’s Place, Claire Trott, says:

“Now is the time to consider if you have used all your allowances for this tax year, especially the ‘use it or lose it’ ones.”

Key allowances for the tax year will lapse if they aren’t used by 6^th April. These include individual savings account (ISA) limits, the capital gains tax annual exemption and some gifting allowances.

£20,000 can be saved or invested in an ISA in the 2025/26 tax year. And any interest, income or growth within an ISA is tax-free, making this an important financial planning tool. Trott adds:

“The ISA is clearly a no-brainer, but other allowances need greater consideration. Time is short, but it has not run out yet.”

The £500 dividend allowance and the £3,000 capital gains tax allowance (or £1,500 for assets held in most trusts) are also subject to the same deadline.

Gifting allowances shouldn’t be overlooked. They can reduce the size of an estate for inheritance tax (IHT) purposes. The £3,000 annual exemption can be carried forward for one year, which means that any unused allowance for the previous 2024/25 tax year will expire after this week.

Individuals can also carry forward unused pension annual allowances from the previous three tax years. This means any unused allowance from 2022/23 must be used before the end of this week.

Payment delays result in NS&I to pay out compensation to bereaved families

Following the government’s admission of significant administrative errors at the bank, National Savings and Investments (NS&I) will need to pay out compensation and return savings to thousands of bereaved families.

The state-backed financial services provider had extensive issues with systems and payments that went out between 2008 and 2025. These resulted in wrong payments being made, plus lengthy delays, in particular with deceased customers’ accounts.

NS&I will pay out £500 million to around 37,500 customers who have been impacted by the problems.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

The levels and bases of taxation and reliefs from taxation can change at any time. Tax relief is dependent on individual circumstances.

The information contained is correct as at the date of the article. The information contained does not constitute investment advice and is not intended to state, indicate or imply that current or past results are indicative of future results or expectations. Where the opinions of third parties are offered, these may not necessarily reflect those of St. James’s Place.

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SJP Approved 30/03/2026