UK growth forecasts slashed by IMF as Iran war hurts global economy – as it happened
The IMF has trimmed the UK’s growth forecasts for 2026 and 2027 after the Iran war triggered a potential energy crisis. While Russia’s outlook improved, Britain faces higher inflation and a weaker economy, prompting calls for targeted support and policy adjustments.
The International Monetary Fund (IMF) has announced a sharp downgrade to the United Kingdom’s economic growth projections for 2026 and 2027, citing the ongoing conflict in Iran and a sluggish performance in the second half of 2025. The new outlook sees growth falling to 0.8% for 2026 and 1.3% for 2027, a significant drop from the earlier estimates of 1.3% and 1.7% respectively.
Why the UK is hit hardest
According to IMF chief economist Pierre‑Olivier Gourinchas, Britain’s high dependence on imported gas makes it especially vulnerable to price shocks. While domestic production is limited, the country still imports a sizeable portion of its natural gas, and the war has pushed market prices higher. This, combined with a weak 2025 performance, has created a “carry‑over effect” that is reflected in the downgraded growth forecasts.
In contrast, Russia has benefited from the crisis. The IMF lifted its growth forecast for Russia to 1.1% for 2025, up from 0.8%, as higher oil and commodity prices have boosted the country’s economy.
Inflation worries for households
While the growth cut is headline‑grabbing, the IMF’s upward revision of inflation forecasts may be more unsettling for British households. The agency now expects inflation to rise to 3.2% in 2026 and 2.4% in 2027, up from previous projections of 2.5% and 2.0% respectively. Senior economist Simon Pittaway of the Resolution Foundation warned that the UK already has the highest inflation and interest rates among G7 nations, and that the new outlook could leave households more exposed to price increases.
Bank of England policymaker Megan Greene highlighted the “upside risks to inflation” as a key concern. She noted that while demand risks exist, the potential for a second‑round inflationary effect could take months to materialise, and current data show a mixed picture.
Energy market turbulence and global financial stability
Maritime analytics firm Windward has observed fragmented responses to the US blockade of Iranian ports, with vessels altering routes and some continuing to use indirect distribution networks. This activity has kept Iranian oil flows alive but has also increased volatility in the Strait of Hormuz.
The IMF’s Global Financial Stability Report warned that the conflict could tighten funding markets and amplify bond market volatility. It also flagged private credit defaults and a slowdown in AI investment as additional risks to the global financial system.
Domestic policy responses and sectoral impacts
Within the UK, the built environment sector is struggling to attract young talent, despite accounting for 12% of the workforce and 17% of GDP. Terry Watts, chief executive of the Built Environment School Trust, criticised the patchy nature of training programmes and the sector’s focus on London and the south‑east. He called for greater awareness and incentives to draw youth into construction careers.
Trade union leaders, including TUC general secretary Paul Nowak, have urged the government to implement a temporary gas price cap to protect businesses and households from the energy shock. Nowak blamed former US President Donald Trump’s actions for exacerbating the crisis, calling the resulting “Trumpflation” a threat to living standards.
Financial strategists such as Lindsay James of Quilter and Sam Alvis of the IPPR have warned that the IMF downgrade is a reality check for the Labour government. They argue that without a resolution to the Middle East conflict, the UK could face a prolonged period of elevated oil and gas prices, stifling growth and increasing recession risk.
Despite the challenges, the IMF projects a modest rebound in 2027, with growth expected to reach 1.3% and inflation to settle at 2.4%. However, the agency cautions that further revisions could occur if the conflict persists.
Overall, the IMF’s latest outlook underscores the UK’s vulnerability to global shocks and highlights the need for targeted, timely policy measures to shield households and businesses from the fallout of the Iran war.
Why it matters
The downgrade signals a tougher economic environment for the UK, raising inflation and growth concerns that could affect household budgets, business investment, and policy decisions.
Key points
- IMF cuts UK growth forecast to 0.8% (2026) and 1.3% (2027).
- Russia’s outlook improves to 1.1% due to higher oil prices.
- UK inflation forecast rises to 3.2% (2026) and 2.4% (2027).
- Energy market volatility linked to Iran conflict and US blockade.
- Built‑environment sector faces youth recruitment challenges.
- Policy calls for temporary gas price cap and targeted support.
Frequently asked questions
Why did the IMF cut the UK growth forecast?
Because the Iran war has increased energy prices and the UK’s economy performed weakly in late 2025, creating a carry‑over effect.
What impact will the higher inflation forecast have on households?
It could increase the cost of living, especially for energy‑dependent households, and may prompt the government to introduce targeted support measures.
How is the UK different from other G7 countries in this situation?
The UK relies more heavily on imported gas, making it more sensitive to price shocks, and it had a weaker 2025 performance compared to peers.
