The International Monetary Fund has sharply downgraded its growth forecasts for the United Kingdom, warning that the Iran war will exacerbate the cost-of-living crisis for at least two years. In its latest World Economic Outlook, the IMF cut its UK growth projection for 2026 from 1.3% to 0.8% — the steepest reduction among G7 economies. The 2027 forecast was also trimmed from 1.5% to 1.3%, reflecting prolonged damage from higher energy prices and weaker economic activity.
Households face further pain as inflation is expected to rise towards 4% in the near term, making the UK the worst performer on inflation in the G7 over the next two years. The IMF noted that “the war and a slower pace of monetary easing” are driving the downward revision, with inflation only forecast to return to target by the end of 2027. Simon Pittaway, senior economist at the Resolution Foundation, said the outlook showed “why British households are more vulnerable than their peers” to the economic fallout from the Middle East conflict.
The Bank of England’s Megan Greene highlighted that upside risks to inflation were “paramount” for interest rate decisions, though she acknowledged that second-round effects may take months to materialise. The IMF also warned that global financial stability risks are “elevated” and that an escalation of the Iran war could trigger a global recession. Meanwhile, maritime data from Windward showed fragmented responses to the US blockade of Iranian ports, including route deviations and potential evasion.
In a separate revision, the IMF raised its 2026 growth forecast for Russia to 1.1% from 0.8%, citing higher oil and commodity prices resulting from the crisis. The UK government faces calls to provide “temporary, targeted, and timely” support for vulnerable households without stoking inflation further.
