The International Monetary Fund has warned that a further escalation of the war with Iran could trigger a global recession, with the UK set to suffer the sharpest growth downgrade among G7 nations. In its half-yearly World Economic Outlook, the IMF cut its growth forecasts for 2026, citing the impact of the conflict so far.
The UK's growth forecast for this year was slashed by 0.5 percentage points to 0.8%, while inflation is expected to approach 4% – double the government's 2% target. The IMF said the UK economy is particularly exposed to soaring energy prices and entered the conflict in a weak position after sluggish growth at the end of 2025.
Chancellor Rachel Reeves, en route to Washington for the IMF meetings, delivered a harsh rebuke to President Trump over the war. She told the Mirror: 'To start a conflict without being clear what the objectives are and not being clear about how you are going to get out of it, I do think that is a folly.' She added that the war was 'not our war' but would come at a cost to Britain.
The IMF outlined three scenarios, ranging from a short-lived conflict to a severe, drawn-out war. Even under the central forecast – assuming disruption fades by mid-2026 – global growth would fall to 3.1% in 2026. In the worst-case scenario, with oil prices above $110 into 2027, global growth would collapse to around 2%, widely seen as equivalent to a worldwide recession.
Oil prices have been volatile, jumping above $100 a barrel after US-Iran talks stalled and a blockade of the Strait of Hormuz began, before falling to about $95 on hopes of further peace talks. The IMF's chief economist warned that every day of disruption pushes the world closer to an adverse scenario with higher inflation and lower growth.
