The International Monetary Fund (IMF) has issued a stark warning that the UK economy will suffer the sharpest cut to growth forecasts of the largest global economies due to the conflict in the Middle East. The war has raised the prospect of a “major energy crisis”, according to the IMF, which will push UK inflation towards 4% – double the Bank of England’s inflation target.
IMF Downgrades Growth Forecast
The IMF has downgraded its growth forecast for the UK due to the war and weaker economic growth late last year. The organisation said that UK gross domestic product (GDP) is set to grow by 0.8% in 2026, with this improving to 1.3% in 2027. This represents a significant downgrade from previous forecasts of 1.3% growth in 2026 and 1.5% in 2027.
- UK economic growth will be weaker than previously expected
- The war in the Middle East is to blame for the downgrade, as well as weak UK growth late last year
- UK GDP is set to grow by 0.8% in 2026 and 1.3% in 2027
Inflation on the Rise
The IMF also warned that UK inflation, which reflects the increase in the price of goods and services, is expected to average 3.2% this year and 2.4% next year. This represents a significant rise from previous forecasts of 2.5% inflation for 2026, indicating that it would drop to the 2% target level in 2027.
- UK inflation is expected to average 3.2% this year and 2.4% next year
- Inflation is likely to move towards 4% in the coming months before easing back, amid hopes that there will be a resolution to the conflict later in the year
Unemployment on the Rise
The IMF also predicted that unemployment will worsen further, with the organisation forecasting that it will rise to 5.6% in 2026 from 4.9% last year.
- Unemployment is expected to rise to 5.6% in 2026
- This represents a significant increase from previous levels of unemployment
Government Response
The UK government has vowed to respond to the crisis, with Chancellor Rachel Reeves saying that “the war will come at a cost to the UK” and promising to keep inflation and interest rates in check.
- Chancellor Rachel Reeves has promised to keep inflation and interest rates in check
- The government is committed to responding to the crisis
Shadow Chancellor’s Response
The Shadow Chancellor, Sir Mel Stride, has criticized the government’s response to the crisis, saying that “being handed the biggest downgrade in the G7 is a clear verdict on Rachel Reeves’ choices – and she’s got no-one to blame but herself”. He also accused the government of leaving businesses to close and the cost of living to skyrocket.
- Shadow Chancellor Sir Mel Stride has criticized the government’s response
- He accused the government of leaving businesses to close and the cost of living to skyrocket
Conclusion
The IMF’s warning highlights the significant impact that the conflict in the Middle East is having on the UK economy. The organisation’s forecast of weaker economic growth and rising inflation underscores the need for a robust response from the government to protect households and businesses.
- The conflict in the Middle East is having a significant impact on the UK economy
- The IMF’s forecast highlights the need for a robust response from the government