Iran war impact: UK growth forecast slashed as IMF warns of higher energy prices

The IMF has cut its forecast for economic growth this year to 0.8% - the largest downgrade among the G7’s wealthy nations - before improving to 1.3% in 2027.

Inflation, which had been gently fading before the US and Israel attacked Iran, is now expected to edge up again, as is the rate of unemployment, which is predicted to reach 5.6%.

Higher prices and more jobseekers will leave everyone - households, businesses and the government - poorer. But an average inflation rate of 3.2% in 2026 is a far cry from the double-digit inflation the UK experienced the last time energy prices took off, after Russia invaded Ukraine four years ago.

The IMF’s assumption is that the scale of this shock is not comparable, and that the war will be short-lived. But its forecast was effectively nailed down a month ago. Energy prices have risen since, and what happens next looks as unpredictable as the man driving events - President Trump.

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