The International Monetary Fund has slashed its growth forecasts for the UK, warning the country faces the sharpest downgrade among major economies due to the escalating conflict in the Middle East. The IMF now expects UK GDP to rise by just 0.8% in 2026, down from a previous forecast of 1.3%, and cut the 2027 outlook from 1.5% to 1.3%.
The Fund’s latest World Economic Outlook, released at its spring meeting in Washington, highlighted that the UK has been hit hardest in the G7, with higher energy prices and slower monetary easing weighing on activity. Inflation is projected to rise towards 4% before returning to target by the end of 2027 as the effects of the energy shock fade.
Simon Pittaway, senior economist at the Resolution Foundation, said British households are more vulnerable than their peers because the UK already had the highest inflation and interest rates in the G7 before the conflict. He warned that households will be most worried by the IMF revising up its inflation forecast to 3.2% in 2026 and 2.4% in 2027, making the UK the worst performer in the G7 on that measure.
Bank of England policymaker Megan Greene said the upside risks to inflation are “paramount” to her thinking on interest rates, although it could take months for evidence of second-round effects to appear. The IMF also raised its growth forecast for Russia to 1.1% this year, benefiting from higher oil and commodity prices.
Maritime analytics firm Windward reported a fragmented response to the US blockade of Iranian ports on its first full day, with some vessels proceeding through the Strait of Hormuz while others delayed or diverted. The IMF warned that global financial stability risks remain elevated due to the conflict.
