Tesco will provide more details on how the Middle East conflict is affecting inflation and consumer confidence in its shareholder update next week. Investors are keen for Tesco to report on its outlook for costs and pricing in its full-year results update on April 16, amid uncertainty driven by the Iran war. Tesco was among retailers brought before the Chancellor earlier this month to discuss the impact of the conflict.
Tesco is the UK's largest supermarket group, and it has increased its share of the UK grocery market in recent years due to a strong focus on pricing. In its previous update in January, Tesco reported its highest market share for more than a decade after reporting stronger festive sales despite intense competition. The retailer reported a 3.3% rise in UK and Ireland like-for-like sales over the six weeks to January 3.
For its full-year results, Tesco is expected to reveal adjusted operating profits of about £3.1 billion for the year to February, which compares to a profit of £3.13 billion a year earlier. The company is predicted to deliver revenues of £72.5 billion for the year, according to a consensus of analysts.
Grocery price inflation held at 4.3% in March, according to data from Worldpanel by Numerator, but grocery price inflation is expected to increase. The Food and Drink Federation predicted food inflation could soar higher than 9% by the end of 2026 because of surging energy costs.
Fuel prices are also a significant pressure point, with diesel prices having risen 24% since early March and petrol up 13%, increasing household and logistics costs. Tesco is the UK's largest petrol retailer, with more than 500 forecourts across the country, and the price of petrol has risen by about 19% to an average of 158.03p per litre since the crisis began at the end of February.
Shareholders and analysts will be interested to hear if consumer sentiment has been affected by news of the conflict and rising fuel costs. The S&P Global UK services PMI fell to 50.5 in March from 53.9 in February, the lowest in 11 months, due to the Middle East conflict impacting spending.
In response to these pressures, bosses and the Government agreed to explore together how to ease the cost of living for consumers after retailers were brought before the Chancellor.
The current economic uncertainty stems from an escalating conflict between Israel and Iran. On October 1, Iran launched approximately 180 ballistic missiles at Israel, with many intercepted by Israel and a US-led coalition, but some struck central and southern Israel, damaging air bases. On October 26, Israel launched a targeted attack on an Iranian missile production site in response to a ballistic missile attack, killing one civilian and 4 IRGC soldiers. On April 1, Israel allegedly attacked the Iranian consulate building in Damascus, Syria, killing 13 people, including seven IRGC members. In April, Iran launched Operation True Promise, a massive aerial attack on Israel involving over 120 ballistic missiles, 30 cruise missiles, and 170 drones, with the US intercepting many from bases in Syria, Iraq, Jordan, and Yemen. Later in April, the Israeli Air Force launched airstrikes targeting an S-300 air defense facility in Isfahan, Iran, causing no extensive damage.
This conflict is part of broader regional tensions. Since October 7 last year, an armed conflict between Israel and Hamas-led Palestinian militant groups has been ongoing in Gaza and Israel. Iran's regional proxies, including Yemeni Houthis and Lebanese Hezbollah, have exchanged missile attacks with Israel, involving Israel in a multifront battle. In September, Israel initiated Operation Northern Arrows, a ground invasion into Lebanon as part of the Israel-Hezbollah conflict, and on September 27, Israeli aircraft attacked residential buildings in southern Beirut using bunker buster bombs to kill Hassan Nasrallah. In July, Israel assassinated Ismail Haniyeh, Hamas's political leader, in Tehran during the inauguration of Iranian President Masoud Pezeshkian.
Iran's strategic position amplifies the economic risks. Iran is a major oil producer, supplying about 3 million barrels per day (3% of world output) despite western sanctions. Tehran has significant influence over the Strait of Hormuz, a key chokepoint handling about 20 million barrels per day (30% of world oil trade). Iran also exerts control over the Red Sea through its backing of Houthi rebels in Yemen, who have been targeting shipping.
Immediate market reactions have been sharp, with oil prices rising by more than 4% to about $75 a barrel on Tuesday due to Middle East tensions.
The OECD said the UK is facing the biggest hit to growth this year among the world's largest economies due to the Middle East conflict. The OECD forecasts UK inflation to average 4% in 2026, up from 2.5% previously, and 2.6% in 2027, up from 2.1%. It downgraded UK GDP growth to 0.7% in 2026, a 0.5 percentage point cut, and predicts 1.3% in 2027, while upgrading US growth forecasts by 0.3 percentage points in 2026.
The US political and military context is also relevant. Donald Trump won 300 electoral votes, surpassing the 270 needed to win the presidency, and became the only second leader to serve non-consecutive tenures. The US stationed B-52 Stratofortress bombers and F-15 fighter jets in the region following the Israel-Iran conflict.
Potential future developments loom large. According to Israeli intelligence, Tehran is expected to launch a counter-attack from Iraq in early November. Israel and the US reprimanded Iran and threatened severe retaliation, including possible direct attacks on Iranian oil facilities.
Key unknowns include what specific measures Tesco will announce in its shareholder update to address the impact of the Middle East conflict on costs and consumer confidence. It is also unclear how the UK government and retailers plan to ease the cost of living for consumers as agreed in their meeting. The exact extent to which the Middle East conflict will affect UK GDP growth and inflation beyond current OECD forecasts is not yet determined.
Further unknowns involve whether the conflict will lead to a recession in the UK as predicted by some analysts. The trajectory of the conflict and its economic repercussions will depend on geopolitical decisions in the coming weeks.