Arion Bank sees Iceland inflation averaging 4.2% next year in latest economic outlook

• Arion Bank cut its Iceland growth outlook on persistent inflation pressures, higher interest rates, weaker sentiment tied to the Middle East conflict.
• Inflation forecast to average 4.2% next year, easing on base effects despite domestic pressures, war-driven energy spillovers, public levies.
• Policy rate seen at 7% by end-next year; rate cuts delayed until mid-year as disinflation progress slows.
• High borrowing costs, rising unemployment expected to restrain private consumption through winter into next year.
• Residential investment projected to contract this year, then fall more next year; real house prices seen declining until mid-2028.

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