The International Monetary Fund has cut its forecast for UK economic growth in 2026 and 2027, citing the impact of the Iran war on the global economy. The UK experienced the largest downgrade among G7 nations in the IMF's latest World Economic Outlook, released at its spring meeting in Washington DC.
UK GDP is now expected to grow by just 0.8% in 2026, down from a previous forecast of 1.3%. The growth projection for 2027 has also been revised lower, from 1.5% to 1.3%. The IMF warned that the escalation of the Iran conflict could trigger a global recession and a major energy crisis.
Households face further pressure as the IMF predicts inflation will rise towards 4% in the near term before returning to target by the end of 2027. Simon Pittaway, Senior Economist at the Resolution Foundation, noted that the UK already had the highest inflation and interest rates in the G7 before the conflict, and now faces the highest inflation of any G7 economy over the next two years.
In contrast, the IMF raised its growth forecast for Russia to 1.1% for this year, driven by higher oil and commodity prices resulting from the Middle East crisis. The Fund also highlighted elevated global financial stability risks in its latest Global Financial Stability Report.
Bank of England policymaker Megan Greene stated that upside risks to inflation remain paramount, but evidence of second-round effects may take months to materialise. Meanwhile, maritime analytics group Windward reported fragmented vessel behaviour in the Strait of Hormuz on the first full day of the US blockade of Iranian ports, including route deviations and potential blockade evasion.
