The International Monetary Fund has warned that a further escalation in the Iran war could trigger a global recession, with the United Kingdom set to suffer the sharpest growth downgrade among G7 nations. In its half-yearly update, the fund cut its growth forecasts for 2026 based on the impact of the conflict so far, highlighting that soaring energy costs are increasingly damaging the world economy.
UK Chancellor Rachel Reeves issued a strong rebuke to US President Donald Trump, blaming Washington for the economic fallout. “The war in Iran is not our war, but it will come at a cost to the UK,” she said before travelling to IMF meetings in Washington. Reeves described the conflict as “a folly”, criticising the US for entering the war without a clear exit plan or objectives.
The IMF’s central reference forecast assumes disruption from the war fades by mid-2026, predicting global growth of 3.1% this year, down from 3.4% in 2025. However, under a worst-case “severe scenario” involving a prolonged war and oil prices above $110 into 2027, global growth could collapse to around 2%, a level widely seen as a global recession. This would mark only the fifth such downturn since 1980.
The UK’s growth forecast for 2026 was cut by 0.5 percentage points to 0.8%, the sharpest downgrade in the G7. Inflation is expected to climb to nearly 4% — double the government’s target. The IMF noted that the UK economy is particularly vulnerable to energy price spikes and entered the conflict in a weak position after sluggish growth at the end of 2025.
Oil prices have already jumped above $100 a barrel after weekend talks between the US and Iran stalled and a US blockade of the Strait of Hormuz began. The IMF’s chief economist, Pierre-Olivier Gourinchas, warned that every day of disruption pushes the world closer to an “adverse scenario” with growth falling to 2.5% and inflation rising to 5.4% this year.
