The International Monetary Fund has slashed its growth forecasts for the United Kingdom, downgrading the UK more than any other G7 economy amid the ongoing Iran war. In its latest World Economic Outlook, the IMF cut UK growth projections for 2026 to just 0.8%, down from an earlier estimate of 1.3%. Next year’s forecast was also trimmed from 1.5% to 1.3%.
The IMF warned that the conflict in the Middle East risks triggering a global recession, with the UK suffering the largest downgrade among advanced economies. The fund said: “In the United Kingdom, the war and a slower pace of monetary easing mean that growth is projected to decline from 1.3 percent in 2025 to 0.8 percent in 2026... Growth is projected to recover to 1.3 percent in 2027, slower than expected before the war as the impact of higher energy prices linger.”
British households face a further blow as the IMF also revised up its inflation forecast, predicting inflation will rise towards 4% before easing back to target by the end of 2027. Simon Pittaway, senior economist at the Resolution Foundation, said: “The IMF’s World Economic Outlook shows why British households are more vulnerable than their peers to the economic fallout from war in the Middle East. In the run up to the conflict, the UK already had the highest level of inflation and interest rates in the G7.”
The IMF’s upward revision leaves UK inflation as the highest in the G7 over the next two years, at 3.2% in 2026 and 2.4% in 2027. Pittaway added that the government’s response should be “temporary, targeted, and timely in order to protect vulnerable households while avoiding stoking inflation”. Separately, Bank of England policymaker Megan Greene said upside risks to inflation remained “paramount” in her thinking on interest rates, though she noted that evidence of second-round effects could take months to materialise.
The IMF also raised its forecast for Russia’s growth this year to 1.1% due to higher oil and commodity prices from the crisis. Meanwhile, maritime analytics group Windward reported fragmented shipping responses to the US blockade of Iranian ports at the Strait of Hormuz, with some vessels complying and others attempting evasion.
