# The optimism index just hit a 50-year low — and it's dead wrong

_Forecasters from the IMF to the EY Item Club keep being outpaced by the data. Neil Woodford on why the UK economic outlook is nowhere near as grim as the consensus insists — and why the IPSOS optimism index just hit a fifty-year low anyway._

Neil Woodford · 23 April 2026 · 8 min read

![The optimism index just hit a 50-year low — and it's dead wrong](https://cdn.sanity.io/images/v3acfbvo/production/72b80e1cdda2b8fd2da997b911160020215befc0-1536x1024.jpg?w=1600&fit=max&auto=format)

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Just like last week, when within hours of the publication of its latest grim economic forecast for the UK economy, the IMF was clean bowled by an ONS GDP data release, and this week The EY Item Club, a high-profile economic research body which uses the Treasury's economic model to produce its forecasts, was similarly clean bowled by data which showed that the unemployment rate had actually declined to 4.9% in the three months to February — its forecast sees unemployment increasing sharply to 5.8% next year. The EY Item Club, in line with the IMF, also sees growth in the UK falling to 0.7% this year which also looks way too bearish given that is close to the growth the economy has delivered in Q1 alone.

I acknowledge that it is a little early to be definitive about where inflation and growth are headed given existing uncertainties about the war in the Persian Gulf, but equally I am regularly perplexed by the reflexive attitude of most economic forecasters who literally fall over themselves in the rush to sound the most apocalyptic. Maybe it's just a desperate attempt by these organisations to attract attention, but on so many occasions it's proved wrong, and in some cases within hours of publication.

For the record, good GDP numbers last week underwrite a much better growth outcome than most are forecasting and the same goes this week for the labour market, which, as I have already pointed out, was pretty resilient over the three months to the end of February. Today's inflation numbers were no worse than expected but interestingly, core inflation actually fell in March from 3.2% to 3.1% — something that not surprisingly received virtually no attention. April's data should still show a fall in inflation even after the impact of higher petrol prices, because of the already announced fall in the energy price cap. Looking ahead to the summer and the rest of the year, assuming oil prices remain at about $100, I see inflation peaking at about 3.5% and remaining there, on average, through the remainder of the year and falling back to 2% next year. For those worried about 'second round effects', like the Bank of England etc, I would encourage them to look at the wage settlement data published by the ONS yesterday. They showed whole-economy average earnings growth of 3.8% in the three months to February, having been 5.7% a year ago. Perhaps more significantly, private sector regular pay growth was 3.2% over the same period, but tellingly, pay growth fell below 3% in February. Not much sign there of the kind of inflationary pressure that the Bank's chief economist was droning on about a week or so ago.

I remain of the view that this energy price shock, such that it is, will not have the devastating impact on the economy that so many are predicting. In my view, its effects are exactly like those of higher taxes, and in this case precisely like an increase in fuel duty. Inflation ticks up, but because higher fuel prices take disposable income out of consumers' pockets, the appropriate response by policy makers should be to reduce interest rates. Realistically, I cannot see the MPC doing the brave, but right thing. However, I do hope that they will not bend to those calling for higher rates and will instead keep rates at 3.75% until the conflict is over and oil prices start to return to where they came from. (I discuss this point in more detail on this week's [Noise Cancelling podcast](https://youtu.be/Qv1Or_vzAjo).)

As for gas prices, an interesting story is emerging that has, as far as I can see, received no attention. Whilst many have been focused on higher petrol and diesel prices, benchmark European gas prices have recently dropped below €42 per megawatt hour, which is lower than where they were at the beginning of 2025. The futures price for next summer is 20% lower than this at about €35 and even lower for winter next year. This also doesn't quite fit the apocalypse narrative either and possibly reflects growing overcapacity in the LNG market despite the concerns about Qatari gas being trapped in the Gulf. This week, Prof. Alan Riley, an energy fellow from the [Atlantic Council](https://www.atlanticcouncil.org/expert/alan-riley/), said 'I have been telling European politicians to stop panicking. There is more than enough new LNG reaching the market from the US and all over the world'.

Clearly there are some near-term impacts from the war with Iran which are having a significant effect on some industries. For example, the UK relies on imports for 70-85% of its jet fuel requirements with a significant proportion of this coming from currently embargoed Kuwaiti refineries. Aside from highlighting the fact that the UK's oil and gas processing industries have been hollowed out by successive government energy policies, this dependence means that jet fuel will be in short supply across Europe and this will lead to flight cancellations, especially for the short-haul sector. For the UK economy this is likely to result in fewer households taking vacations abroad this summer which won't be good news for airlines or some holiday companies. However, more households staying at home this year will boost domestic consumption at the expense of Spanish, French or Greek GDP for example. (The UK has a £50bn deficit in this sector — UK households spend about £50bn more abroad than foreign tourists spend in the UK.) So whilst a concern in some respects, a shortage of jet fuel is not bad news for UK GDP in aggregate.

Whilst on the subject of the gap between economic forecasting fantasy and reality I thought that I should mention a very recent [IPSOS UK economic optimism survey](https://www.ipsos.com/en-uk/economic-optimism-falls-record-low-concern-over-inflation-rises) which was published in the last few days. (See below.) Alarmingly the survey showed that when asked the question 'do you think that the general economic condition of the country will improve, stay the same or get worse over the next 12 months', the net optimism index result was the worst in the fifty-year history of the survey. Worse than in the steep recession of the early 1980s, worse than during the financial crisis in 2008 and 2009 when the UK economy confronted genuine disaster, worse than during the global pandemic in 2020 and worse than in June 2022 shortly after Russia invaded Ukraine. This is barely believable but true and reflects the overwhelming hysteria we are bombarded with daily by the media and consensus economics who cannot resist the temptation to portray every event as yet another reason to abandon all hope. They are wrong now, have been consistently wrong in the past and I suspect will continue in this vein for years to come.

## Update on the conflict in the Persian Gulf

Undoubtedly, developments since last Friday have not been terribly encouraging with the two sides apparently further apart than might have been assumed last week. Nevertheless, the ceasefire has been extended, something which I was confident would happen, but the Straits of Hormuz are closed to shipping either because of the threat posed by Iran's remaining military capability or by the US naval blockade. Much posturing is taking place with rumours that more militant IRGC commanders are taking control. Indeed, the size of the Iranian delegation at the talks in Pakistan last week (81) indicates that there is little clarity on who is capable of, or who is actually making decisions on the Iranian side. Nevertheless, the two sides are still engaged informally and there is a chance that another round of formal talks may take place at the weekend in Islamabad.

My sense is still that the economic pressure being applied via the blockade to the Iranian economy and to its oil infrastructure is telling and will catalyse more meaningful engagement sooner or later. Of course, the global economy is also suffering from the consequences of the oil embargo, and especially economies in Asia that have historically been more dependent on imports from the Persian Gulf. I also believe that Pakistan has had some success in persuading China to get involved too and it is apparently applying some pressure to the Iranian regime to engage. Meanwhile it is increasingly obvious that the Iranian economy is creaking and that cash shortages are becoming more acute. (Witness an interesting [BBC report from Tehran](https://www.bbc.co.uk/news/videos/cx23w8exw9xo) compiled by Lyse Doucet on Thursday.)

In summary, although the chances of an imminent solution to this conflict appear relatively remote, my guess is that there is ample incentive for both sides to continue to engage and to resist the temptation to restart the fighting. It is equally true that agreement could be achieved relatively quickly and as I contemplate the probabilities of the three scenarios I have previously talked about, I still am confident that the central case which involves resolution and the opening of the Straits of Hormuz is by far the most likely.

In financial markets this week the news has generally been good, despite the geopolitics, and certainly in the US where a number of high-profile companies have released encouraging, better-than-expected numbers. On that list are a number of global semiconductor businesses including SK Hynix, STMicro, ASM and TSMC, all of which are citing very strong AI investment as the key driver of those better-than-expected outcomes.

## What to look out for next week

Next week, once again, there will be a lot of focus on macro data both in the US and in the UK and across the Eurozone. In the US there is a particularly busy calendar which includes labour market, inflation and GDP data, and in the UK there will be quite a lot of attention paid to what the MPC says about its interest rate decision which is announced on Thursday. The decision itself should not attract too much attention given that it is highly likely that rates will not change. In the US my focus will be on the GDP data which I suspect will continue the recent trend of good growth above 2%, demonstrating the economy's resilience in the face of higher fuel prices and a softish labour market. The Eurozone GDP and inflation data on Thursday will also attract some attention. Here I expect growth to be muted and inflation to remain pretty subdued despite the effects of higher energy prices.

The Q1 results season will continue in the US and will kick off in earnest in the UK where there are going to be nearly fifty results or trading statements released. It's going to be busy once again.