IMF downgrades growth as Iran crisis bites
The UK is projected to suffer the sharpest cut to economic growth forecasts for large rich economies in the latest forecast from the International Monetary Fund.
It highlights the nation’s exposure to the inflationary impact of the Iran war.
The UK economy is expected to grow by 0.8% in 2026, down from a previous projection of 1.3%.
Susannah Streeter, chief investment strategist, Wealth Club
”The IMF downgrade is a fresh blow to Chancellor Rachel Reeves and the government’s elusive search for growth. The UK is set to be battered by hot oil prices, an energy bill crisis and a tightening of consumer spending. The economy was already flatlining even before war erupted in the Middle East, and now there is little means of resuscitation available given that interest rates look set to ramp up to curb inflation. Hopes of fresh talks to find a resolution to the conflict are providing a balm of sorts. One to two interest rate increases are now being priced into financial markets instead of the scary three to even four hikes temporarily forecast, but it’s still going to be tough going ahead if borrowing costs rise further. Plans for a big bang of home construction with 1.5 million new dwellings targeted by the government have turned into more of a whimper. Property companies have scaled back ambitions as the Middle East crisis has hurt demand, and high uncertainty lingers. The government’s latest lever to pull is a closer relationship with Europe, but a deal on accepting single market rules will take time to be agreed, so it won’t nudge growth forward any time soon. As companies batten down the hatches and try to wait for the storm to pass, investment plans are being trapped. The UK is stuck in a stagflation scenario and risks of a recession are rising fast.”
