HAMISH MCRAE: Our economic system is powerful sufficient to cope with newest Middle East blow

We have to assume that the Strait of Hormuz is likely to remain closed throughout the summer.

There may of course be a reasonably swift end to the open warfare with Iran. However, the practicalities of clearing the vital Gulf waterway of mines, the risk of terrorist attacks on vessels and the cost of insurance will remain a profound concern for many months to come.

What will that mean for the world economy, and in particular for us here in the UK? Here are five reasonable certainties – and one huge imponderable.

First, energy costs will remain high throughout this year and almost certainly into 2027.

That means inflation will remain way above the 2 per cent target of most developed countries.

This isn’t just about the direct effect of the lack of oil and gas that would normally pass through the strait. It is also about the secondary effect on food production from increased fertiliser costs, as natural gas is used to produce it.

Second, interest rates will rise through the coming months too. Here in the UK the markets are pricing in two increases from the Bank of England this year, the first in June. It is most unlikely the Bank’s Monetary Policy Committee will move at its meeting this week, and given current uncertainties that feels right.

But the Bank is very aware that it was seen to be too slow to act when inflation let rip during the last energy shock, and will not want to make that mistake again.

It’s tricky to make judgments about the direction of the US Federal Reserve, given its new chairman, Kevin Warsh, is not yet in post. But from what he said at Senate hearings last week he will do what is needed to bear down on inflation. The European Central Bank will clamp down too.

Third, the central banks have no option because long-term rates are already reflecting bond market fears about inflation.

The UK is most vulnerable for reasons we know all too well, and the yield on our ten-year gilts – UK Government bonds – was a whisker under 5 per cent on Friday, raising the cost of Government borrowing. The equivalent US Treasury notes are at 4.3 per cent, and ten-year German yields are over 3 per cent, which may sound low to us, but are around their highest since 2011.

Four, there will be inevitable disruption from the squeeze on oil and gas. But don’t believe the alarmist stuff that this is the worst energy crisis since the 1970s. It’s not, certainly as far as the UK is concerned. We are a net exporter of petrol, though we do import crude and other oil products, including jet fuel and diesel.

At the moment we get half our jet fuel from the US. But while global businesses are adept at coping with stress, it is only when you test a system that problems occur. That said, a lot of fights in Europe are likely to be cancelled. That in turn will damage other businesses that depend on travel.

That leads to the final point we can be confident about. People are not stupid. We adapt.

You see that here. UK retail sales did well last month. Why? Because people reckoned fuel prices would rise so filled up their tanks – fuel accounted for more than half of the jump in spending. Consumers will react to the prospect of higher energy prices as they did to the threat of higher taxes – by saving more, globally.

There will be a notable slowdown, especially on the Continent and in East Asia. The UK isn’t too badly placed because as a service-driven economy we are less vulnerable to external shocks.

But it will feel miserable, for this blow is on top of self-inflected damage by our Government.

And the imponderable? It is whether the markets are right.

US shares remain around all-time highs. Here share prices are off their peak, but are still well up on the start of this year.

On Friday, Sarah Breeden, a deputy governor at the Bank of England, said current share prices didn’t reflect the economic pressures facing the markets.

Of course they don’t, but markets don’t care. Their collective wisdom is the world economy is robust enough to cope with this blow, as it has with so many others. My instinct is they are right.