The UK economy has been hit with the sharpest cut to growth forecasts among G7 nations following the conflict in the Middle East, according to the International Monetary Fund (IMF). The IMF now expects UK gross domestic product (GDP) to grow by just 0.8% in 2026, down from its January forecast of 1.3%, and 1.3% in 2027 compared with the previous 1.5% estimate.
The organisation blamed the downgrade on rising energy prices linked to the war, which it said could push UK inflation towards 4% in the coming months – double the Bank of England's 2% target. Inflation is expected to average 3.2% this year and 2.4% next year, with higher petrol and diesel costs already hitting households.
Chancellor Rachel Reeves acknowledged the impact, stating: “The war in Iran is not our war but it will come at a cost to the UK.” She added that these were not costs she wanted but ones the country would have to address.
The IMF also warned that global recession risks are elevated. In a severe scenario, global growth could fall below 2% for the first time since the pandemic. The body said the conflict had “abruptly darkened” the outlook, with the Strait of Hormuz blockade threatening an energy crisis of “unprecedented scale”.
Unemployment in the UK is projected to rise to 5.6% in 2026 from 4.9% last year. The IMF noted that weak UK economic performance in late 2025 also contributed to the downgrade, alongside the war's effects.
