The International Monetary Fund 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 UK growth forecast for 2026 by 0.5 percentage points to 0.8%, while warning inflation could climb to nearly 4% – double the government's target.
The IMF said the UK economy is particularly exposed to soaring energy prices and entered the conflict in a weak position after sluggish growth at the end of 2025. Under a worst-case 'severe scenario' involving a drawn-out war and persistently high oil prices above $110 a barrel into 2027, global growth would collapse to about 2% this year, a threshold widely seen as equivalent to a worldwide recession.
UK Chancellor Rachel Reeves issued the British government's harshest rebuke yet to US President Donald Trump, blaming him for starting a conflict 'without being clear what the objectives are'. Speaking before travelling to Washington for IMF meetings, Reeves told the Mirror: 'I feel very frustrated and angry that the US went into this war without a clear exit plan.'
The IMF lowered its US growth forecast for 2026 by 0.1 percentage points to 2.3%, while warning that net energy importers and developing nations would face the biggest hits. Oil prices jumped above $100 a barrel on Monday after US-Iran talks ended in stalemate and a US blockade of the Strait of Hormuz began, though prices fell back to around $95 on Tuesday amid hopes of further peace talks.
IMF chief economist Pierre-Olivier Gourinchas said the world was drifting closer to an 'adverse scenario' in which oil prices remain close to $100 this year, with growth falling to 2.5% and inflation rising to 5.4%. 'Every day that passes, and every day we have more disruption in energy markets, we are drifting more towards the adverse scenario,' he warned.
