Iran war ‘will knock UK hardest out of all the world’s top economies’

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The UK will suffer the worst damage from the war in Iran out of all the world’s advanced economies, according to a new report from the International Monetary Fund.

Growth forecasts for the next two years have been slashed compared to those from before the war began at the end of February.

Inflation in the UK is also set to be higher than previously expected, as the IMF says the global economy could be knocked ‘off course’ by the conflict.

Reacting to the new World Economic Outlook, Chancellor Rachel Reeves said the Iran war is ‘not our war’, but it will nevertheless ‘come at a cost to the UK’.

She added: ‘These are not costs I wanted, but they are costs we will have to respond to.’

According to the IMF forecast, growth in the UK will be 0.8% in 2026, down from 1.3% the last time the international body issued a prediction in January.

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That 0.5% drop is the largest in the G7 group of nations, though the updated figure is still higher than the predicted growth for Italy and Japan.

Inflation in the UK is also set to be the joint highest for the next two years – tying with the US on 3.2% this year, and with Italy on 2.4% in 2027.

The Bank of England’s target rate for inflation is 2%.

In its report, the IMF predicts UK inflation will head towards 4% this year before falling back to the target by the end of 2027.

Shadow Chancellor Sir Mel Stride said Reeves has ‘no one to blame but herself’ for the downgrade in growth.

He said: ‘Her “plan” to keep costs down has left us with the highest inflation in the G7, with businesses closing and the cost of living skyrocketing.’

In an interview with the Mirror today, Reeves said she felt ‘very frustrated and angry’ with the US for going to war ‘without a clear exit plan, without a clear idea of what they were trying to achieve’.

Last month, the Institute of Grocery Distribution (IGD) said the average UK household could be spending £340 more on food and drink this year due to the impact of the Iran war.

In the event of a ‘moderate energy price shock’, the industry body forecast average food inflation would hit 4.8% – but an ‘intense energy price shock’ could kick it up to 6.4%.

For an average UK household with an annual grocery bill of £5,283, the latter scenario would mean an increase of £338 a year.

A spokesperson for the IGD told Metro their predictions remain unchanged ‘for now’ as hopes that the ceasefire will lead to an end to the energy crisis fade, but added they ‘are closely monitoring the situation’.

They added: ‘A more drawn‑out or escalating conflict, particularly one that materially disrupts energy flows or shipping routes, could increase the likelihood that inflation outcomes move closer to our more severe scenarios.’

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