The International Monetary Fund (IMF) has warned that a further escalation of the war in Iran could trigger a global recession, with the UK set to suffer the sharpest growth downgrade among G7 nations. In its half-yearly World Economic Outlook, the IMF cut its growth forecasts for 2026, citing the economic damage from the Middle East conflict. The UK's growth forecast for this year was slashed by 0.5 percentage points to 0.8%, while inflation is expected to climb to almost 4% – double the government's 2% target.
The IMF outlined three scenarios for the war. In the central 'reference forecast', which assumes disruption fades by mid-2026, global growth would fall to 3.1% in 2026. Under an 'adverse scenario' with oil prices near $100 a barrel, growth would drop to 2.5% and inflation to 5.4%. The worst-case 'severe scenario', with oil above $110 into 2027, would see global growth collapse to about 2% – a threshold widely seen as a global recession – for only the fifth time since 1980.
UK Chancellor Rachel Reeves blamed US President Donald Trump for the conflict, calling it 'a folly' and expressing frustration that the US entered the war without a clear exit plan. 'The war in Iran is not our war, but it will come at a cost to the UK,' she said. The IMF noted that net energy importers and developing nations would be hit hardest, and that the UK's economy was particularly exposed to soaring energy prices after sluggish growth at the end of 2025.
Oil prices have been volatile, jumping above $100 a barrel after US-Iran talks stalled and a US blockade of the Strait of Hormuz began, before falling to about $95 on hopes of further peace talks. The IMF's chief economist, Pierre-Olivier Gourinchas, warned that every day of disruption in energy markets pushes the world closer to the adverse scenario.
