Chancellor Rachel Reeves has intensified her criticism of US President Donald Trump's military action against Iran, labelling it a 'mistake' that has destabilised the global economy and damaged living standards worldwide. Speaking in Washington DC, Reeves urged a return to diplomatic talks to mitigate the economic fallout on the UK and other nations.
The International Monetary Fund (IMF) has warned that the Iran war could trigger a global recession and drive up debt levels. IMF Managing Director Kristalina Georgieva advised countries to conserve energy through measures such as free public transport and working from home, cautioning against untargeted subsidies that would prolong high prices. She also noted shortages of oil, gas, and other products in Asia, and expressed concern over potential food price inflation if fertiliser deliveries are not restored.
Despite the bleak outlook, the IMF commended the UK's progress in reducing its budget deficit. In its latest Fiscal Monitor, the IMF highlighted that the UK's deficit fell from 6.1% of GDP in 2024 to 5.4% in 2025, driven by tax increases and the expiration of temporary energy support measures. The IMF projects the UK deficit will drop further to 3.9% of GDP this year and continue declining to 1.6% by 2031, the second-lowest in the G7 after Canada.
The IMF also cautioned Chancellor Reeves to adhere to her fiscal rules, emphasising the importance of sticking to spending envelopes and strengthening the efficiency of value-added and property taxes to rebuild fiscal buffers. Meanwhile, the IMF warned that global debt levels are on track to reach 100% of GDP by 2029, a level not seen since World War II, partly due to the economic shock from the Iran conflict.
