See below for recent analysis and consensus economic forecasts from Consensus Forecasts – G7 & Western Europe, March 2026.
Survey Highlights
Our March survey of Consensus Forecasts-G7 & Western Europe occurred as the US and Israel struck Iranian targets, prompting Iranian retaliation on energy facilities in the Gulf States, and enormous disruption to the crucial shipping lane of the Straits of Hormuz which handles around 20% of global oil trade. With the conflict escalating into its second week, the price of oil has soared. At one point on March 9, Brent broke through the US$100-per-barrel ceiling and did so again on March 12. The outlook for the G7 & Western European economies, most of them reliant on oil and gas from the Middle East, has faltered amid a potential energy crisis. Although there is huge uncertainty over how long the conflict will last and when oil and gas facilities will return on-line, GDP growth forecasts have started to pull down while those for inflation have tracked up even more noticeably, underscoring stagflation concerns, and as illustrated in the Monthly CPI charts below. Despite rising inflation projections, the direction of policy interest rates over the course of 2026 and 2027 is so far largely unchanged. The ECB is still mostly expected to remain on hold through to December 2027, while one cut is forecast for the Bank of England this year and two for the US Federal Reserve. If the conflict continues and inflation accelerates, interest-rate hikes will be on the table.
Recent US Consensus Economic Forecasts – Jobs Data and Iran Strikes Shake Up 2026 Expectations
The advance Q4 2025 GDP growth outturn slowed to +1.4% (q-o-q annualized) from robust rates of +4.4% in Q3 and +3.8% in Q2. Personal consumption moderated from 3.5% (q-o-q annualized) in Q3 to a still-solid 2.4% in Q4. But the Q4 report did highlight the main driver of activity which will undoubtedly continue into 2026: Q4 business investment accelerated by 3.7% (q-o-q annualized), up from 3.2% in Q3, with spending on equipment and intellectual property (the latter growing by 7.4%) especially upbeat. This underscores AI-spending momentum in the economy. However, outside of AI and computers, non-tech investment was far weaker, and structures investment declined for a seventh straight quarter. Softer activity is evident in two February jobs reports – the ADP covering private payrolls, and the Bureau of Labor Statistics covering total payrolls – although it must be noted that both January and February were disrupted by big winter storms. ADP reported 63,000 private payrolls were added in February, but January was revised down to 11,000. Payrolls growth was concentrated in only two areas: education & healthcare, and construction. The BLS report was much weaker: January payrolls had surged by 126,000, but that was eroded by a -92,000 fall in February, while the unemployment rate edged up to 4.4%. A strike in the one sector seeing brisk hiring – healthcare – destabilized overall jobs growth, along with cuts in tech and Federal government. Other factors could also be immigration policy and AI replacing some entry-level positions. For the Fed, balancing the softening labor market against growing inflation risks will be challenging. Strikes on Iran, along with the closure of the crucial Straits of Hormuz, have pushed oil prices to US$100 per barrel. This could trigger US inflation, which is already poised to deal with the inflationary impact of Federal tax rebates and ongoing tariff pass-through.
Recent UK Consensus Economic Forecasts – Q4 GDP Growth Teeters Above Stagnation
The Q4 2025 national accounts were unimpressive, with Q4 recording +0.1% growth (q-o-q). October output was diminished by a Jaguar Land Rover cyber-attack, though subsequent months were also poor. Household consumption growth halved from 0.4% in Q3 to 0.2% in Q4, while investment faltered into negative territory (-0.1%). The breakdown also highlighted services activity stagnating in the most recent quarter. GDP growth is estimated to have expanded by a not-inconsiderate 1.3% in 2025, though this was weighted towards the start of the year, and H2 2025 tracked more poorly than the slowest growth period of the 2010s. The Office for Budget Responsibility’s forecasts suggest this trend is set to continue in 2026, predicting growth of only 1.1%, down from November’s 1.4% projection. Adding to the disappointment, the unemployment rate is forecasted to reach 5.3% by mid-year, already at its highest level (5.2%) since the pandemic. There was, however, some positive news on the fiscal-headroom front, which has increased from £21.7bn to £23.6bn. Borrowing is now expected to fall by £18bn this year. Lower spending on servicing public debt, and stronger tax revenue should help to bring public sector net borrowing down. However, the OBR made these forecasts before the Iran crisis. Subsequent oil price increases have raised inflation expectations and spiked long-term bond yields. The headline CPI actually eased from 3.4% (y-o-y) in December to 3.0% in January, while service costs slowed from 4.5% (y-o-y) to 4.3%, though not as quickly as the Monetary Policy Committee may have liked. Early data also suggests grocery inflation rose from 4% to 4.3% in the 4 weeks leading up to February 22, and thus consumers are unlikely to see a moderation in rising costs. Given the ongoing geopolitical uncertainty, expectations on whether a rate cut will occur in the BoE’s meeting later this month remains split.
Recent Consensus Economic Forecasts: World Economic Activity
