The International Monetary Fund has warned that a further escalation of the conflict in Iran could trigger a global recession, with the United Kingdom set to suffer more than any other G7 nation. In its latest World Economic Outlook, the IMF cut its growth forecasts for 2026, citing the rising economic damage from the war. The UK faces the sharpest growth downgrade and the joint highest inflation rate in the G7 this year, even under a scenario where the fallout from soaring energy costs subsides by mid-2026.
Under a worst-case scenario involving a prolonged war and persistently higher energy prices, the IMF said the world would face a “close call for a global recession” for only the fifth time since 1980. Global growth would fall to about 2% this year, a threshold widely seen as equivalent to a worldwide recession. Oil prices have already jumped above $100 a barrel after US-Iran talks ended in stalemate and a US blockade of the Strait of Hormuz began.
Rachel Reeves, the UK chancellor, blamed Donald Trump for the impact of the war. Speaking before travelling to Washington for IMF meetings, she said: “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: “I feel very frustrated and angry that the US went into this war without a clear exit plan.”
The IMF lowered its forecast for US growth in 2026 by 0.1 percentage points to 2.3%, but the UK suffered the sharpest downgrade among G7 nations, with its 2026 growth forecast cut by 0.5 percentage points to 0.8%. Inflation in the UK is expected to climb to almost 4%, double the government’s 2% target. The fund said the UK economy was particularly exposed to soaring energy prices and entered the conflict in a weak position after sluggish growth at the end of 2025.
The IMF set out three scenarios for the war. In a central forecast, global growth would fall from 3.4% last year to 3.1% in 2026. In an adverse scenario, growth would drop to 2.5% this year and inflation would rise to 5.4%. Pierre-Olivier Gourinchas, the IMF chief economist, warned: “Every day that passes, and every day we have more disruption in energy markets, we are drifting more towards the adverse scenario.”
