The International Monetary Fund has warned that a further escalation of the Iran war could trigger a global recession, with the UK set to suffer the sharpest growth downgrade of any G7 nation. In its half-yearly World Economic Outlook, the IMF cut its growth forecast for the UK this year by 0.5 percentage points to 0.8%, while warning inflation would climb to almost 4% – double the government's 2% target.
UK chancellor Rachel Reeves used the IMF's warning to deliver the British government's harshest rebuke yet to President Trump, blaming the US for launching the conflict without a clear exit plan. '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 told the Mirror.
The IMF outlined three scenarios for the war's economic impact. Under the central 'reference forecast', assuming disruption fades by mid-2026, global growth would fall from 3.4% last year to 3.1% in 2026. In an 'adverse scenario' with oil prices near $100 this year, growth would drop to 2.5% and inflation to 5.4%. A 'severe scenario' – with a lengthy war keeping oil above $110 into 2027 – would see global growth collapse to about 2%, widely seen as a global recession.
Oil prices jumped above $100 a barrel after weekend talks between the US and Iran ended in stalemate and a US blockade of the Strait of Hormuz began. IMF chief economist Pierre-Olivier Gourinchas warned that every day of disruption pushes the world closer to the adverse scenario.
