Households across the UK are facing a more severe cost of living increase than previously anticipated for the next two years as a result of the Iran conflict, according to a leading organization’s warning.
The International Monetary Fund (IMF) has downgraded its projections for UK economic growth, dealing a significant setback to Chancellor Rachel Reeves and the Labour party’s efforts to jumpstart a recovery.
The IMF outlined the grim repercussions of the Middle East turmoil, cautioning that a global recession could be imminent in a worst-case scenario.
Following attacks by US President Donald Trump and Israel on Iran in late February, the IMF has revised its UK growth forecast for this year from 1.3% to just 0.8%, and for next year from 1.5% to 1.3%. Additionally, the IMF now anticipates inflation to average 3.2% this year and 2.4% next year, contrary to previous predictions.
This ongoing financial strain on households is compounded by surging petrol and diesel prices, along with expectations of increased energy bills and food expenses.
Furthermore, the IMF has warned that unemployment rates are expected to worsen, rising to 5.6% in 2026 from 4.9% in the previous year.
The escalation in oil and gas prices in recent weeks has been influenced by disruptions in energy production and transportation due to attacks on facilities and the blockade of the Strait of Hormuz.
Government officials, including Chancellor Rachel Reeves, and central bank leaders like Andrew Bailey from the Bank of England, are currently in Washington for the annual IMF meeting.
The IMF’s economic counsellor, Pierre-Olivier Gourinchas, highlighted in a preface to the latest report that the global economic outlook has taken a sharp downturn, derailing the steady growth trajectory.
He expressed concerns over the potential for an energy crisis of unprecedented scale, should critical production facilities in the global hydrocarbon supply region be severely damaged.
In a severe scenario, the IMF projects a 1.3 percentage point reduction in global growth for 2026 due to the conflict, potentially teetering on the brink of a global recession.
Simon Pittaway, a senior economist at the Resolution Foundation, emphasized the vulnerability of British households to the economic ramifications of the Middle East conflict, underscoring the need for cautious and targeted government interventions to shield vulnerable households and prevent further economic strain.
