Travel industry leaders warned of ‘significant inflationary shock’

The US war on Iran has delivered “a significant inflationary shock” to the world economy but, unlike the surge in inflation following Russia’s invasion of Ukraine in 2022, this could prove temporary.

 

That is according to Deloitte director of economic research Debapratim De who told the Barclays Travel Forum in London on Wednesday: “The war has had a significant impact on sentiment.”

 

It had caused “a significant inflationary shock”, said De, warning: “The nature and scale of the disruption to energy production in the Gulf means it’s highly likely prices will remain high.”

 

But he argued: “The one mitigating factor, if you compare this to when Russia invaded Ukraine, is that the underlying price pressures were much stronger then than they are now.

 

“We’ve seen the labour market weakening for more than a year, so we think the inflationary shock will be temporary.”

 

However, how governments react to the crisis could have an impact on the economy, he said, noting: “Markets are looking closely at how the [UK] government is responding. 

 

“They would not want to see blanket subsidies [to mitigate the rise in energy bills].”

 

De suggested there would be no repeat of the caps on energy bills introduced following Russia’s invasion of Ukraine, saying: “One way to keep inflation low is through some destruction of demand.”

 

He added: “Quite a lot of the government’s headroom on spending has probably evaporated. I don’t see the government having the economic room for a broad-based intervention.”

 

De said financial markets would also be wary of a change of UK prime minister. He argued: “A leadership contest that brings into question future tax policy, future government spending and future regulation, will only add to uncertainty. 

 

“A leadership contest would have to be fought by appealing to the Labour left [and] we already start to see a reaction from business.”

 

He warned: “Once a new prime minister emerged, their biggest challenge would be that they inherit an even tighter fiscal situation than the current government and a far more complex and contested political environment.

 

“It will be incredibly hard for an incoming leader to make changes.”