The UK is set for the biggest hit to growth among the world’s largest economies as a result of the conflict in the Middle East, the International Monetary Fund (IMF) has warned. The UK’s gross domestic product (GDP) is now expected to grow by 0.8% in 2026 and 1.3% in 2027, down from previous forecasts of 1.3% and 1.5% respectively.
The IMF said the downgrade was driven by the war in the Middle East and weak UK growth in the second half of last year. Inflation is forecast to average 3.2% this year and 2.4% next, with the conflict pushing it towards 4% in the coming months – double the Bank of England’s target.
Higher energy prices, more expensive fuel and increased food inflation are expected to follow, with petrol prices already up 19% and diesel rising by more than a third since the conflict began. Unemployment is predicted to rise to 5.6% in 2026 from 4.9% last year.
Chancellor Rachel Reeves said the war ‘will come at a cost to the UK’. The IMF also warned that a severe escalation could lead to a global recession, describing it as a ‘close call’.
