Economics Observatory | Insights on the UK and global economy

How is the conflict in the Middle East affecting developing economies?

Developing countries are often vulnerable to fuel price shocks caused by global geopolitical tensions. As well as raising the costs of key items such as petrol and food, conflicts like the Iran war can force affected governments into expensive subsidies, further damaging already weak economies.

Public spending, taxes & debt

UK national security: what have we learned from strategic defence reviews?

The history of British defence policy has been one of constant imbalance between resources, capability and commitments, interspersed with reviews that fail to solve the fundamental problems. These appraisals are typically done at times of economic crisis when public expenditure must be controlled.

Transport & infrastructure

Are more trains the answer to economic struggles in the North of England?

More often than not, the political answer to the North of England’s economic challenges is more trains. Yet while fresh investment in rail infrastructure may boost prosperity in certain places, it isn’t the catch-all solution that some politicians present it to be.

DATA HUB

Ongoing war in Iran sees fuel prices continue to surge

US petrol prices have surged since the US-Israel strikes on Iran began Feb 28. Regular gasoline is up 35% in 4 weeks ($2.94→$3.96/gal). Diesel has risen even faster: +41%, now $5.38 and within $0.44 of its all-time record.

Compare with last June's 12-day US-Israel-Iran conflict. Gasoline barely moved (+$0.10, quickly reversed). Diesel rose ~$0.30 then retreated. With strikes on gas fields continuing, expect prices at the pump to rise further still.

Nations, regions & cities

Why don’t we have nicer buildings?

The benefits of distinctive urban architecture extend far beyond the buildings themselves, but the costs are borne by the developers. This can lead to underinvestment in high-quality design – and it raises the question of whether policy should encourage better architecture.

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The West of England has a highly educated and skilled workforce, globally competitive universities and leading industrial clusters. Yet there are wide inequalities across the region, and the potential for growth is constrained by problems with transport, housing affordability and lack of investment.

Banks & financial markets

How might distressed fintech firms affect UK growth and private debt?

Rare cases of severe losses in large fintech firms – what are known as black swan events – may harm UK growth and significantly increase debt among households and small businesses. Current regulations are adequate for addressing this tail risk, but there are challenges in enforcement.

Prices & interest rates

How might the Middle East conflict shape Europe’s inflation outlook?

The immediate economic fallout from war in the Middle East lies in the spikes in oil and gas prices, and in major disruptions to aviation and shipping. The countries most vulnerable to future inflation from the shocks are those that combine energy import dependency with weak external balances.

Prices & interest rates

Could tensions between Iran and Israel trigger a new wave of inflation?

The immediate inflationary impact of widening conflict in the Middle East is likely to be limited. But potential trade and supply chain disruptions, weakening business sentiment and elevated uncertainty could have major consequences for the global economy. Governments face tough budgetary choices.

Trade & supply chains

What effects have energy sanctions had on Russia’s ability to wage war?

Despite facing unprecedented sanctions on its energy exports, Russia continues to earn hundreds of billions of dollars a year from oil and gas – directly funding military aggression in Ukraine. While sanctions have had a noticeable impact, they have failed to end the war.

Trade & supply chains

Sanctions effectiveness: what lessons three years into the war on Ukraine?

Western countries imposed extensive sanctions on Russia after the invasion of Ukraine in February 2022. But the measures were unilateral and piecemeal – and while they have been effective in disrupting the Russian economy, evasion and ‘trade deflection’ through third countries limits their impact.

Public spending, taxes & debt

Why do some people in the UK face marginal tax rates of over 60%?

Various adjustments to Britain’s tax and benefit system have created sharp spikes in marginal tax rates. Some families take home less than 40p of each extra pound they earn, blunting incentives to work or take promotions.

Nations, regions & cities

What role could migration play in the reconstruction of Ukraine?

Russia’s full-scale invasion of Ukraine has triggered the largest refugee crisis in Europe since World War II, with nearly six million Ukrainians displaced worldwide. This creates a critical challenge looking ahead to post-war reconstruction. With over 200,000 Ukrainians currently here in the UK, policy-makers must consider both the current needs of refugees and how the diaspora can help to support economic recovery in Ukraine.

Trade & supply chains

Global defence spending: What next for European military procurement?

With its fragmented production process, European defence procurement is inefficient and uncompetitive in comparison to the United States. A new approach, prioritising cross-country collaborations, could improve things, but would not be without its own challenges.

Jobs, work, pay & benefits

What do we know about the effects of military conscription?

Mounting national security threats have led a number of European countries to consider reinstating mandatory military service. Proponents argue that it would bolster national defence and boost citizenship among young people. But evidence on either effect is scarce or points to the opposite outcome.

All Answers