UK growth forecast cut as Iran war drives energy shock, IMF warns

On Tuesday 14 April 2026, the International Monetary Fund warned that the economic fallout from the Iran conflict is expected to hit the UK harder than any other advanced economy, as rising energy prices begin to feed through into inflation and growth.

In its latest World Economic Outlook, the IMF reduced its UK growth forecast for 2026 to 0.8%, down from 1.3% in January. The downgrade reflects a combination of higher energy costs, fewer expected interest rate cuts, and the likelihood that these pressures will last well into next year. According to the Fund’s World Economic Outlook, the wider global economy risks being pushed “off course” if the conflict continues.

The UK’s exposure lies in its position as a net energy importer. When oil and gas prices rise sharply, the impact is felt quickly across households and businesses, often appearing first in energy bills, transport costs and the price of everyday goods. These changes tend to move through the economy steadily, affecting both household spending and the costs faced by firms.

The IMF expects inflation to rise again this year, potentially approaching 4%, before easing back towards the Bank of England target of 2% by 2027. That leaves the UK balancing slower growth with continued price pressure, a combination that limits how quickly conditions can improve.

Among G7 economies, the UK is now forecast to record middling growth this year while also experiencing some of the highest inflation. The Fund cautioned central banks against responding too aggressively with interest rate rises, noting that acting too quickly to suppress inflation driven by energy shocks could slow the economy further and risk tipping it into recession.

The uncertainty surrounding the conflict remains a central concern. IMF projections assume a relatively contained and short-lived disruption. In more severe scenarios, with oil prices rising above $110 per barrel and remaining elevated, the global economy could come close to recession.

Chancellor Rachel Reeves acknowledged the pressure, stating that while the conflict is not one initiated by the UK, its economic consequences will still be felt. Shadow chancellor Mel Stride argued that domestic policy decisions have worsened the impact, pointing to higher costs for businesses and persistent inflation.

For readers who want to see the full assessment, the IMF’s latest outlook is set out in its World Economic Outlook.

What stands out in this forecast is the source of the pressure. Much of it comes from outside the UK economy itself, shaped by energy markets and geopolitical instability. Those forces tend to move quickly, and their effects are often felt in everyday costs before they are fully reflected in official data.

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