In its latest Quarterly Bulletin, the bank raised its inflation forecasts to 3.5 per cent in 2026 and 2.9 per cent in 2027, citing higher energy prices linked to continuing disruption in the Strait of Hormuz.

Launching the report, Robert Kelly, director of economics and statistics, said: “The global economy continues to face challenges and heightened uncertainty arising from the conflict in the Middle East. With the disruption in the Strait of Hormuz continuing into its fourth month, despite news of a resolution, uncertainty remains.”

“Even when the conflict is fully resolved the restoration of supply chains will take an extended period. Accordingly, there has been exceptional volatility in spot prices for oil alongside related commodities and more persistent challenges to supply leading to a higher outlook for energy prices generally than at the time of our March forecasts. For Ireland, higher energy costs are eroding household real incomes and damping consumer confidence, while also feeding through to broader inflationary pressures.”

He added: “The conflict poses complex risks to global supply chains beyond energy, with potential downstream effects on production costs and economic activity. Against this backdrop, domestic economic policy faces the dual challenge of supporting those most vulnerable and enabling households and firms build resilience to these shocks generally, while avoiding measures that unnecessarily add to demand or entrench inflationary pressures within the economy.”

The bank said inflation could approach five per cent in 2027 if global energy prices remain elevated for a prolonged period.

The report also highlighted contrasting trends in the Irish economy. Modified domestic demand is expected to continue growing, supported by multinational investment in artificial intelligence and data centres, while headline GDP fell sharply in the first quarter of 2026.

GDP declined by 17.1 per cent year-on-year and 12.1 per cent quarter-on-quarter, largely due to a drop in exports of polypeptide hormones used in weight-loss drugs and weaker offshore goods trade.

Meanwhile, unemployment rose to five per cent in the first quarter, up from 4.6 per cent in the final quarter of 2025 and its highest level since 2021.