UK faces biggest hit to growth from Iran war of major economies, IMF says
IMF: UK to Suffer Largest Growth Setback Amid Iran Conflict
The International Monetary Fund (IMF) has warned that the UK will experience the most significant economic slowdown among major advanced economies due to the energy crisis triggered by the Iran war. Its latest World Economic Outlook revised the nation’s growth forecast for this year to 0.8%, down from the 1.3% projection made in January before hostilities escalated.
The downgrade stems from the ongoing conflict, reduced interest rate cuts, and the anticipation that elevated energy costs will persist into 2025. The Fund also cautioned that the war could destabilize global economic trends, with a prolonged dispute risking a worldwide recession. Central banks are advised to tread carefully when increasing rates to combat inflation, as the IMF highlighted that abrupt measures might undermine long-term growth.
The UK’s growth adjustment is the most severe among advanced economies, positioning it with moderate expansion compared to other peers. This revision mirrors the OECD’s recent assessment, which also identified the UK as the G20 economy most affected by the Iran war. The IMF emphasized the UK’s vulnerability as a net energy importer, though it anticipates a rebound next year, with the country regaining its status as the fastest-growing European economy in the G7 group, albeit at a slower pace of 1.3%.
Despite the challenges, the UK government has set a goal to become the top-performing G7 economy by the end of its current parliamentary term. Inflation is projected to reach 3.2% this year, matching the US and Italy in 2027, and the IMF noted that temporary spikes in prices could push inflation to 4% before settling back toward the Bank of England’s 2% target by late 2027.
Political Reactions to IMF Forecast
“The war in Iran is not our war, but it will come at a cost to the UK. These are not costs I wanted, but they are costs we will have to respond to,” said Chancellor Rachel Reeves.
Shadow Chancellor Sir Mel Stride criticized the government, attributing the IMF’s downgrade to its policies, including increased employers’ National Insurance and business rates. He argued that Reeves’ approach to cost control had resulted in the UK having the highest inflation in the G7, with businesses closing and living costs soaring.
“The downgrade is an indictment of Trump’s idiotic war and all those who cheered it on—including Reform and the Conservatives,” stated Liberal Democrat Treasury spokesperson Daisy Cooper. “Starmer’s latest words against the US President are worthless without a plan to shield people from Trump’s economic vandalism.”
Analysts suggest the Bank of England may raise interest rates later this year, but the IMF urged restraint, warning that premature hikes could lead to a recession if supply constraints remain in energy sectors. The Fund expressed caution due to the uncertainty in Gulf conflicts, relying on a swift resolution by mid-year to stabilize projections.
The UK’s inflation rate stood at 3% for the year to February, exceeding the central bank’s target. While some economists foresee rate increases, the IMF advised against hasty decisions, stressing the potential trade-off between inflation control and economic growth.
