The International Monetary Fund has cut the UK's 2026 growth forecast to 0.8%, making Britain the most exposed advanced economy to the economic fallout from the Iran war, the IMF said in its latest World Economic Outlook update.
Energy shock hits hardest
Britain's reliance on imported energy and its limited gas storage capacity make it acutely vulnerable to the oil and gas price spike caused by the conflict. Brent crude has stayed above $130 per barrel since the Strait of Hormuz disruptions began. The IMF said UK inflation could reignite, forcing the Bank of England to keep rates higher for longer.
Global recession risk
The IMF warned that the global economy faces a 'material risk of recession' if the war persists through the end of 2026. It revised down growth forecasts for the eurozone, Japan, and emerging markets while noting that oil-producing nations are benefiting from the price surge. Global trade volumes have already fallen 2% since the conflict began.
Business impact
UK manufacturers report input costs rising at the fastest rate in three years. Small businesses, already squeezed by post-Brexit trade frictions, are cutting staff and delaying investment. The Confederation of British Industry called for emergency government support, including temporary VAT cuts on energy.