The International Monetary Fund has warned that a further escalation of the Iran war could trigger a global recession, with the United Kingdom suffering the sharpest economic downgrade among G7 nations. In its half-yearly World Economic Outlook, the IMF cut growth forecasts for 2026, citing the rising economic damage from the conflict.
Under a central 'reference forecast' assuming disruption fades by mid-2026, global growth is expected to fall from 3.4% last year to 3.1% in 2026. However, a 'severe scenario' involving a drawn-out war and oil prices above $110 per barrel into 2027 could push global growth to around 2%, a threshold widely seen as a global recession.
The UK's growth forecast for this year was cut by 0.5 percentage points to 0.8%, the largest downgrade in the G7, while inflation is projected to climb to almost 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 blamed US President Donald Trump for the war's impact, stating: 'The war in Iran is not our war, but it will come at a cost to the UK.' She criticised the US for entering the conflict without clear objectives or an exit plan. The IMF also lowered its US growth forecast for 2026 by 0.1 percentage points to 2.3%.
Oil prices have remained volatile, with Brent crude dropping 4% to about $95 per barrel on Tuesday amid hopes for peace talks, after jumping above $100 following stalled US-Iran negotiations and a US blockade of the Strait of Hormuz. 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.
