UK house prices regained momentum in March, rising by 0.9% in the month according to Nationwide, marking the largest monthly increase since December 2024. The building society reported annual price growth of 2.2%, bringing the average price of a UK home in the first quarter to £274,930, a 1.5% increase on the same period last year.
Robert Gardner, Nationwide’s chief economist, said the pick-up suggested the market was gaining pace after a slow end to 2025, but warned the figures could be “the calm before the storm”. The lender’s data revealed stark regional disparities: Northern Ireland continued to massively outperform, with prices up 9.5% year-on-year, while the Outer South East and East Anglia saw prices fall by 0.7% and 0.4% respectively. By property type, detached homes saw the strongest growth (2.4%) while flats fell by 0.5%.
A fragile economy faces external shock
This housing market resilience stands in contrast to the underlying weakness of the wider economy. The Office for National Statistics confirmed that gross domestic product grew by just 0.1% in the final quarter of 2025, matching the preceding three months. While annual growth for 2025 was revised up slightly to 1.4%, the figures show the UK entered 2026 with, as one analyst put it, “very little momentum”.
The Organisation for Economic Co-operation and Development has significantly downgraded its UK growth forecast for this year to just 0.7%, from 1.2% previously, which would make Britain the second-slowest growing G7 economy. This vulnerability is now being severely tested by the geopolitical shock emanating from the Middle East.
The Middle East conflict reshapes the economic outlook
The escalating conflict has triggered a sharp rise in global energy prices, with Brent crude oil trading above $113 a barrel this morning, having reached a high of $119.50 in March—its highest level since mid-2022. The critical factor is the closure of the Strait of Hormuz, which has disrupted an estimated 20 million barrels of oil per day.
According to the OECD, the UK economy will be damaged more than any other industrialised nation by this crisis, due to its dependence on international trade and fuel imports. The immediate effect is a dual threat: slower growth and reignited inflation. The Bank of England has already indicated that Consumer Price Index inflation is likely to hover between 3% and 3.5% in the second and third quarters of this year because of higher energy costs, a view echoed by the OECD, which has raised its UK inflation forecast for 2026 to 4.0%.
This has forced a dramatic reversal in expectations for interest rates. Robert Gardner of Nationwide noted that towards the end of March, financial markets were pricing in three interest rate increases over the next twelve months. Before the conflict, they had anticipated two cuts. This shift has caused a sharp rise in the longer-term swap rates that underpin fixed mortgage pricing, pushing average mortgage rates above 5% and triggering the most turbulent period for the mortgage market since the aftermath of the 2022 mini-budget.
Gardner warned that if sustained, higher borrowing costs “could reverse some of the improvement in housing affordability that has taken place in recent years”. Tom Bill, head of UK residential research at Knight Frank, added that as six-month mortgage offers expire, the effect of higher rates will filter through this spring and summer, likely putting “downward pressure on prices and transaction volumes”.
The Bank of England now faces a severe policy dilemma. As one analyst noted, prolonged economic stagnation would normally argue for looser policy to support growth, but with inflation likely to rise again, the scope to cut rates is limited. The Bank held rates at 3.75% at its last meeting; markets now expect the next move to be an increase.
The collision of these forces is severely denting consumer sentiment. The GfK Consumer Confidence Index fell to -21 in March, its weakest level in nearly a year. The BRC-Opinium survey showed economic expectations at a dire -53. This anxiety is feeding into defensive behaviour, with reports of rising savings and reduced willingness to make major purchases.
This is unfolding as households face rising costs. Grocery inflation remained at 4.3% in the four weeks to 22 March, according to Worldpanel by Numerator, but is expected to accelerate due to higher energy and farm costs. The researcher noted that financial anxiety was already high before the conflict and that conditions are now intensifying.
Unilever in advanced food merger talks
In corporate news, Unilever has confirmed it is in “advanced discussions” to merge its food business with US rival McCormick & Company, the maker of French’s mustard and Cholula hot sauce. The potential deal, which could be agreed imminently, is expected to create a combined entity worth roughly $60bn including debt.
The transaction is structured as a cash-and-stock deal, with about $15.7bn in cash upfront plus equity in McCormick, leaving Unilever and its shareholders owning 65% of the combined company. The move is seen as a strategic shift for Unilever to streamline its portfolio and focus on its personal care and beauty brands, following last year’s spin-off of its ice cream business into the separate Magnum Ice Cream Company.
Elsewhere, shares in lenders involved in the car finance scandal, including Lloyds Banking Group and Barclays, rose after the Financial Conduct Authority released the final details of its compensation scheme. The FCA narrowed the number of eligible loan agreements to 12.1 million contracts, but increased the expected payout per contract to £830, including interest.
