# Iran’s leverage fades; the forecasters are bowled out again

_Iran’s grip on the oil market is weakening and UK growth has left the forecasters behind again, while US core inflation goes nowhere. Plus a rout in memory-chip stocks and another bank tax._

Neil Woodford · 16 October 2026 · 13 min read

![Ship to ship transfer](https://cdn.sanity.io/images/v3acfbvo/production/b8012445fb7fdf01b811f3ee080b78271e06f158-1672x941.jpg?w=1600&fit=max&auto=format)

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There is not much new to comment on in the conflicts in Europe and the Middle East, albeit there are ongoing attempts to settle both of them, and away from the headlines there does appear to be some progress, especially in relation to the latter. As for economic news, there is quite a bit to comment on, including some interesting US inflation data and encouraging GDP data in the UK. The usual round of pre-Budget posturing in the media is now in full swing, and there have been a few scary forecasts of fiscal black holes again which, according to their authors, will need to be filled by tax increases and/or spending cuts. One of these, highlighted in the IFS’s Green Budget report, is a really good example of what I think is fundamentally flawed analysis. This week’s podcast focuses on this subject, so I won’t repeat here what is in that episode and [the accompanying NC research piece](https://www.noisecancelling.co/read/seasonal-stupidity-but-dont-panic), but suffice to say that in my opinion there is no such black hole, and so no need to increase taxes once more to fill it.

_Neil and Jon discuss this on this week’s show:_ [Does Britain Really Need £35bn of Tax Rises?](https://www.noisecancelling.co/the-show) — Does the UK need £35bn of tax rises at the 2026 Budget? The IFS Green Budget says Chancellor John Healey is £35bn short ahead of his first Budget on 28 October. Neil Woodford says the number rests on an interest rate nobody actually forecasts.

There have also been a few interesting developments in equity markets in the last few days, mainly centred on the wider AI trade and the reversal in fortunes of a number of leading semiconductor stocks, which I will comment on later in this Round Up. And at the end, I am starting something new.

## Iran’s leverage is fading

So, first to the conflict in the Middle East. Despite [continued Iranian strikes on shipping](https://www.aljazeera.com/news/2026/10/14/iran-steps-up-hormuz-surveillance-attacks-soar-oil-flows-crash-again) traversing the Strait of Hormuz, the two sides are continuing to negotiate with each other through intermediaries, [including Pakistan and Qatar](https://tass.com/world/2200777). Separately, after Houthi strikes on Riyadh’s airport, [Iran has urged Saudi Arabia](https://www.aljazeera.com/news/2026/10/12/irans-fm-urges-diplomacy-in-call-with-saudi-counterpart) to seek a political solution in Yemen rather than continue the escalating military confrontation, and has offered to help start talks. As for the US/Iran conflict, [the sticking points appear to be the sequencing of an agreement](https://www.thestar.com.my/news/world/2026/09/30/iran-receives-us-feedback-on-seven-day-trust-building-plan), with the US side insisting on nuclear commitments whilst Iran continues to prioritise reopening the strait, an end to the US blockade and a permanent ceasefire. I suppose the key question is whether, as the incentives to settle increase on both sides, a deal can be done before further damage is inflicted on the global economy.

My own view is that although there are clear signs of stress in some markets, most notably in diesel ([the IEA says wholesale diesel reached a record](https://www.iea.org/reports/oil-market-report-october-2026) of about $220 a barrel in Europe and the US last month), the world has adjusted incredibly well to this energy shock, and much better than most had anticipated. The table below is relatively up to date and neatly summarises the current position:

![Gulf crude is flowing again. Products and Iran are not](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chart-weekly-15oct26-gulf-flows-a706b4783ed3-light.png)

_Gulf producers are getting crude out at pre-war volumes, 40% of it now bypassing Hormuz. Refined products, diesel included, are a fifth of normal. Iranian attacks in October have made the flows lumpier._

[According to Vortexa](https://www.bairdmaritime.com/shipping/tankers/us-blockade-successfully-locks-down-iranian-crude-exports-at-zero), Iranian seaborne crude exports fell to zero in the second week of September and have stayed there since.

Elsewhere, [OPEC has reported](https://theedgemalaysia.com/node/821720) that its members increased production significantly in September despite the situation in Iran. OPEC+ crude output rose by about 900,000 barrels a day to 39.07m b/d, and Saudi Arabia told OPEC it produced 8.37m b/d, the most since the war started. Separately, Russian crude production edged down again on OPEC’s estimates, and Russia’s diesel exports have fallen sharply since Ukrainian drone strikes on its refineries.

In summary, whilst the western media tends to focus on the political pressure on President Trump to settle the war, given the harm it has inflicted on his support base ahead of next month’s midterm elections, what tends to get missed is the economic pressure that is clearly building on Iran. Whether this is sufficient to catalyse compromise is anyone’s guess, but it must be acknowledged, as I have been saying for weeks now, that the point of maximum Iranian leverage on global energy markets is long past. Javier Blas’s chart of the premium paid for physical Middle East crude, which spiked in March and has since collapsed, makes the same point.

_[Embedded media](https://x.com/JavierBlas/status/2110410044927885369)_

## US inflation: headline up, core flat

This week the inflationary consequences of the war were apparent in [US inflation numbers published on Wednesday](https://www.cnbc.com/2026/10/14/cpi-inflation-report-september-2026.html). US CPI rose in September to 3.7%, slightly above expectations but below April’s 3.8% and May’s 4.2% prints. Core CPI also increased slightly, to 2.6%, but remains well controlled (see below).

![US core inflation is no higher than in December](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chart-weekly-15oct26-us-cpi-c5912cd45702-light.png)

_Eight months after Russia invaded Ukraine, US core inflation was 6.3%. Seven months into this war it is 2.6%, against 2.5% before it started._

What to me is notable about these data is how subdued core inflation is seven months into this conflict, particularly in the context of what happened after Russia invaded Ukraine in February 2022: eight months after that invasion, US core inflation was 6.3%. As I have been saying since March, the second-round effects much loved by policymakers, and especially by the hawks on the MPC, appear to be completely absent, not only in the UK but also in the US, where despite a slightly disappointing print in September, core inflation is no higher than it was in December. What’s also interesting is that the Treasury market has rallied this week and yields have fallen despite this slightly higher than expected inflation data: the ten-year yield fell from 5.24% last Friday to 5.10% on Thursday. This may have been triggered by a couple of Fed committee members, [John Williams](https://www.cnbc.com/2026/10/13/john-williams-fed-rate-hikes-2027.html) and [Mary Daly](https://money.usnews.com/investing/news/articles/2026-10-14/exclusive-feds-daly-says-rate-hikes-likely-needed-but-not-urgently), talking openly about disinflationary forces and there being no rush to raise official rates again, although [some of the buying](https://asia.nikkei.com/business/markets/us-yields-fall-as-investors-look-for-safety-and-bet-on-pause-in-rate-hikes) was a flight to safety as AI stocks fell.

## UK GDP: clean bowled again

In the UK, [August GDP data was published on Thursday](https://www.ons.gov.uk/economy/grossdomesticproductgdp/bulletins/gdpmonthlyestimateuk/august2026). I have to say when I saw the print I did laugh out loud. Once again, the perpetually bearish consensus was clean bowled. Instead of contracting by 0.1%, the economy grew by 0.1%. But the good news didn’t end there. Monthly GDP for June was also upgraded to 0.4% from 0.3%, which leaves the three months to the end of August showing output up 0.7%. To put these numbers into context, I think it helps to look at year-on-year comparisons. In the three months to August, output was up 1.8% on the same period in 2025, and in August alone output was up 2.1% on the same month last year. That leaves output 1.8% higher than it was in December, miles ahead of, nay not even in the same postcode as, [the consensus forecast of 1.2%](https://www.gov.uk/government/statistics/forecasts-for-the-uk-economy-september-2026) for the whole year. (Even if the economy doesn’t grow at all between now and December, growth in 2026 will come out at about 1.5%.) Stand by for an array of surreptitious upgrades in the weeks ahead.

_More on August GDP:_ [Still not fizzling out](https://www.noisecancelling.co/read/still-not-fizzling-out) — August GDP beat the consensus for the fourth month running. Output is up 1.3% since the war began, and 2026 now beats every independent forecast even if the economy does not grow again this year.

On a slightly more serious note, I have to say this data leaves me scratching my head again, wondering what on earth is wrong with folk like the OBR, the Bank of England, the IMF, the OECD, NIESR, Oxford Economics, Capital Economics etc etc. I could go on. Serious questions should be asked about whether they need to start again, to try and understand first what it is they’ve all got wrong about the UK economy, and secondly what they need to do to put it right.

Unfortunately, the chances of that are next to zero. Whilst we will see lots of upgrades in the next few weeks, I do not anticipate any of these organisations having the courage and objectivity to accompany those upgrades with an explanation of what it was that led them all to have such a bearish outlook for the economy. As I have said on numerous occasions in Round Ups and research pieces over the last two years, it’s obvious that the models these organisations are using are spewing out the wrong answers, and that really matters when it comes to the policy decisions their forecasts then lead to, specifically in the case of the OBR and the Bank of England.

## The hawks in Bangkok

Whilst on this important subject, I noticed that two of the most high-profile hawks on the Monetary Policy Committee, Megan Greene and [the Bank’s chief economist, Huw Pill](https://finance.yahoo.com/economy/policy/articles/boe-hawk-pill-skeptical-market-072157743.html), were at it again this week, repeating the second-round effects mantra. Ms Greene’s commentary was especially disappointing but not surprising. Hot on the heels of [her trip to South Africa](https://www.noisecancelling.co/read/pavlovian-central-banks-the-stealth-tax-squeeze), this week she was in Bangkok, where [she was arguing](https://uk.finance.yahoo.com/news/boe-greene-says-uk-growth-041436057.html) that stronger growth was by definition evidence that monetary policy was not tight enough. She went on to suggest that there isn’t much slack in the economy (something about which she clearly has an opinion but cannot measure) and, very strangely, that slack in the labour market may have peaked.

> The GDP data that we’ve gotten suggests that we’re not that restrictive, that there’s not that much slack in the economy.
>
> — Megan Greene, MPC member · Bangkok, October 2026

I could not disagree more with this opinionated guff. Indeed, I am much more aligned with her colleague on the committee, Alan Taylor, who has recently said the opposite. [At the end of last month](https://www.bankofengland.co.uk/speech/2026/september/searching-for-signposts-speech-by-alan-taylor) he said that the current policy stance was “restrictive enough”, but aside from that, it’s factually wrong to suggest that because growth has picked up, this by definition requires higher interest rates. I also don’t share her view of the labour market. Vacancies are down by almost half from their 2022 peak, unemployment is higher than a year ago and [private sector regular pay growth](https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/bulletins/uklabourmarket/september2026) is at its lowest since 2020. Objectively, these are signs of weakness, not strength.

Having said all this, I suspect that the committee will find it hard to resist the pressure to increase rates at the next meeting, which is on 5 November. The outcome will depend on which side of the argument the neutrals come down on, but unfortunately the peer pressure may be too hard to resist given that the ECB, the Bank of Japan and the Fed all raised rates last month. If they do decide to raise rates, it will go down like a bucket of cold sick with the Prime Minister and his Chancellor, who only a week or so before, in the Budget on 28 October, will be doing all they can to argue that they are bringing back hope and helping to offset the cost of living for working families etc etc. In my view it would also be a mistake, driven by the mangled logic of hawks on the committee who have been wrong all year about the economy, and inflation in particular. But importantly, although not helpful, it will not change my view about the outlook for the economy in the remaining months of 2026 and in 2027.

## The top 1%

Finally, just before I sign off on the UK, a chart I bumped into this week which should send a little shiver down Mr Healey’s back. Many on the left of British politics have dismissed the exodus of high earners from the UK over the last few years as irrelevant to the nation’s finances and, not surprisingly, have bid those who have chosen to leave good riddance. This chart, I think, illustrates why that may not be quite so wise.

![The top 1% pay more than a quarter of all income tax](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chart-weekly-15oct26-top1-tax-78e5ba4beee2-light.png)

_The top 1% of taxpayers receive about an eighth of taxable income and pay more than a quarter of all income tax. In 1978-79, by the IFS’s estimate, they paid 11%._

On [HMRC’s figures](https://www.gov.uk/government/statistics/shares-of-total-income-before-and-after-tax-and-income-tax-for-percentile-groups), the top 1% of taxpayers receive about an eighth of taxable income and pay more than a quarter of all income tax. In the late 1970s, according to the IFS, they paid about 11%.

## The semiconductor sell-off

Finally, to some interesting moves in global equity markets in the last few weeks which have captured my attention. The most notable are the significant falls in semiconductor stocks across the world, [led by SK Hynix, Samsung and Micron](https://www.cnbc.com/2026/10/15/memory-stocks-micron-sk-hynix-samsung-china.html). At Thursday’s close, Hynix’s Korean stock was down 57% from its high in late June, with Samsung down more than 40% and Micron a more modest 23%. Other leading AI stocks have fallen significantly too, especially in the last two weeks.

![The memory makers have fallen furthest](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chart-weekly-15oct26-memory-selloff-b942e2284d19-light.png)

_The trigger for the memory makers was CXMT’s plan, announced on 10 October, for a denser server memory chip by the end of the year. Hynix fell 25% between 8 and 15 October._

This correction has been prompted by a resurgence in underlying concerns about the scale of the global AI capex boom and its financeability, valuations in some parts of the tech sector, and the impact of higher interest rates on growth more generally. In the semis sector it also reflects concerns about the potential for Chinese manufacturers to grab market share in the memory market, [after CXMT announced plans](https://technode.com/2026/10/12/cxmt-plans-next-generation-ddr5-server-memory-using-denser-dram-architecture/) for a denser server memory chip by the end of the year. On this point, it is true that some of China’s leading semiconductor manufacturers have advanced rapidly in recent years, but in the memory market it’s also clear that the leading global players have a significant technology lead. For example, [they are mass-producing sixth-generation HBM4 chips](https://www.koreajoongangdaily.com/business/chinas-cxmt-begins-hbm3e-production-as-chip-battle-with-korean-powerhouses-widens/12854260), whilst CXMT has only just started small-scale production of the fifth-generation HBM3E.

Some of the wider concerns seem legitimate to me, especially regarding the financing, given the volume of bond issuance from some of the recent start-ups in the AI infrastructure space, including one called CoreWeave. It listed in March last year, is loss-making, has about $52bn of debt and lease obligations and a market value of about $38bn. [Its bonds maturing in 2032](https://www.cnbc.com/2026/10/14/coreweave-stock-bond-yields-ai-debt.html) trade at around 80 cents on the dollar and yield nearly 15%, and it has an aspiration to issue considerably more.

Clearly specific examples like this can cause alarm, albeit that CoreWeave [reported a revenue backlog of about $104bn](https://investors.coreweave.com/news/news-details/2026/CoreWeave-Reports-Strong-Second-Quarter-2026-Results/default.aspx) at the end of June, and says it has signed more than $25bn of new commitments since, which of course indicates incredibly robust demand for its services. My sense here is that this correction, whilst reflecting some genuine investor concerns, is also a healthy correction in crowded trades, often with associated leverage. Once it is over, I suspect that amongst the debris there will be some genuine opportunities, especially where valuations have corrected to attractive levels. Fundamentally, I do not see the AI capex boom unwinding, but I do believe the pace of investment may slow simply because of supply constraints around the availability of key enabling technologies like memory chips or lithography machines. This is not a race, or an industrial revolution, that governments or leading companies are going to be able to actively pause or opt out of.

## Postscript: the banks

As we approach the Budget, the speculation about what the Chancellor will do, sadly, increases. Some of the more lurid and ill-informed speculation can be dismissed, but leaks or heavy hints from government should attract more attention. Right at the end of this week, [it now appears](https://www.ajbell.co.uk/news/articles/press-chancellor-poised-tax-raid-uk-banks-budget-guardian) as if the Chancellor will not be able to resist the temptation to milk the banking sector again. The usual voices on the left have advocated a further tax raid on the banks, which they argue is justified simply because the sector has grown its profits in recent years. This comes despite the Chancellor [describing the sector](https://www.yahoo.com/news/articles/asked-bank-tax-uks-healey-095132405.html), in an interview in Bangkok during the IMF meetings, as part of “the jewel … in the British economic crown”.

As disappointing as this is, it reflects a couple of things. First, it’s a product of Mr Healey’s limited room for further tax increases that have the potential to raise significant revenues (I suspect it will only raise about an additional £2bn), and secondly, it reflects his need to raise some revenue to fund the intervention that I believe is planned to insulate households from [the increase in the energy price cap](https://www.cornwall-insight.com/press-releases/16-price-cap-rise-forecast-in-january/) coming in January. Most disappointing, though, is the fact that this government will once again default to tax to fund additional spending rather than address, for example, the already bloated welfare budget, which [has increased by almost £40bn since the election](https://assets.publishing.service.gov.uk/media/69a6d7b62e1f4fbda4252208/economic-and-fiscal-outlook-march-2026-web-accessible.pdf) to about £355bn this year, or 11.2% of GDP – roughly the size of Denmark’s entire economy.

## What to look out for next week

It’s a relatively quiet week for macro data in the US but a busy one in the UK. Highlights will be labour market data on Tuesday, which I expect to show continued but moderate declines in employment and lower average earnings growth, and [September’s inflation data on Wednesday](https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/august2026), which is additionally important because it sets the increase in most state benefits next April. (Under the triple lock, the state pension rises by the highest of September’s CPI, earnings growth and 2.5%. On current numbers, earnings growth of 3.9% will set it unless September’s CPI comes in higher.)

Unlike the macro calendar, the US corporate one is very busy. Rather than list all the companies I will be trying to keep tabs on, I thought I might just show this graphic, which covers the next four weeks:

![Figure](https://cdn.sanity.io/images/v3acfbvo/production/3ab584942aa277952709b499acec12960d3c1d18-3840x2160.jpg?w=1600&fit=max&auto=format)

In the UK it is a relatively quiet week, with results from Barclays and Sainsbury’s on Thursday the ones I will be focused on.

## Three charts to finish

This week I am starting a new feature. From now on, each Round Up will end with a few charts that I think are interesting and potentially provocative. They take very little time to read, and I hope they prompt some thoughts and questions. Here goes.

### How concentrated the US market has become

The five largest companies in the S&P 500 are now worth as much as the bottom 434 put together. That is the highest reading in Michael Batnick’s data, which go back to 1991. The previous high, about 345, came at the top of the dotcom bubble.

_[Embedded media](https://x.com/michaelbatnick/status/2108232094258512061)_

### Property price deflation in China

After inflation, Chinese house prices have fallen by a quarter since their 2021 peak and are lower than at any point since the BIS series began in 2005. Property accounts for most Chinese household wealth, which is why it is so hard to get Chinese consumers to spend more, and in part why the economy is so dependent on exports.

![Chinese house prices, after inflation, are below their 2005 level](https://r4at4qm6kmohrtvq.public.blob.vercel-storage.com/charts/chart-weekly-15oct26-china-house-prices-6dede1be9515-light.png)

_In nominal terms prices are down 23% from the peak but still above their 2010 level. After inflation, every gain since 2005 has gone._

### A more optimistic IMF

And finally, a surprising increase in IMF optimism against a backdrop of the worst energy price crisis in history. [This week’s World Economic Outlook](https://www.imf.org/en/publications/weo/issues/2026/10/13/world-economic-outlook-october-2026) puts world growth next year at 3.4%, up from 3.2% in April and the highest forecast the IMF has made for 2027. Its forecast for this year is unchanged since April, at 3.1%.

![Financial Times chart of successive IMF world growth forecasts for 2026, 2027 and 2028, from spring 2021 to autumn 2026. The latest forecasts for 2027 and 2028 are the highest yet.](https://cdn.sanity.io/images/v3acfbvo/production/215664eac2686104cbf2994f3f6bf48138e424a5-1480x1264.png?w=1600&fit=max&auto=format)

_Financial Times, 13 October 2026. IMF data, FT calculations._

_[Interactive version](https://flo.uri.sh/visualisation/30513275/embed)_