This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from The i Paper. If you’d like to get this direct to your inbox, every single week, you can sign up here.

This is Armchair Economics with Hamish McRae, a subscriber-only newsletter from The i Paper. If you’d like to get this direct to your inbox, every single week, you can sign up here.

The war in Iran may, if you believe Donald Trump, soon be over. The US President has said it will last another “two or three weeks”. But the economic consequences will last through the rest of this year and beyond. Indeed, the storm is yet to come, and we have to get through it as best we can. It will not, as our Prime Minister acknowledged yesterday, be easy.

Don’t be misled by the sharp recovery in share prices and the fall in the oil price that took place over Wednesday afternoon. For shares, this is a relief rally; relief, that is, that some sort of end is in sight. That could quickly evaporate if such a judgement proves wrong.

As for oil prices, yes, they dipped briefly below $100 (£75) a barrel, but that is up from $60 (£45) at the beginning of the year and just over $70 (£52.50) at the end of February. The inflationary impact of that is showing at the pumps, but has yet to move through the economy as a whole.

That’s the core of the problem. What we are getting now is a foretaste of the surge in inflation that will come progressively through the summer and autumn. That will be very hard to pull back to the Treasury’s 2 per cent target level here in the UK, as well as in the US and Europe. The cost of oil and gas affects the cost of everything else. Not only are they the largest sources of energy – oil supplies 34 per cent of global primary energy demand, and gas 25 per cent – but they are also vital feedstocks for many other products, including plastics and, notably, fertiliser. The Food and Drink Federation has warned that food prices could rise by 9 per cent this year.

The only real weapon against inflation is higher interest rates. So, hopes of a decline this year have disappeared; the cost of long-term borrowing for the Government has risen sharply; and the markets predict that the next move of rates from the Bank of England (BoE) will be up, not down. The prospect of higher interest rates has already increased mortgage costs and will inevitably dampen........

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