UK Faces £35bn Hit and Risk of Recession This Year over Impact of Iran War, Thinktank Warns

Why It Matters

The analysis signals heightened macro‑economic volatility for the UK, forcing tighter monetary policy and straining Labour’s fiscal roadmap ahead of local elections.

Key Takeaways

• NIESR projects £35bn (~$45bn) hit, recession risk 2026.
• Growth forecast cut to 0.9% for 2026, 1% for 2027.
• Oil price spike to $140/barrel could push inflation above 5%.
• Bank may raise rates 1.5% in one move, biggest since 1992.
• Government borrowing could add £24bn (~$31bn) by decade's end.

Pulse Analysis

The Iran‑Israel conflict is reverberating far beyond the Middle East, exposing the United Kingdom’s vulnerability to global energy shocks.

NIESR’s latest forecast quantifies the damage at roughly £35 bn, a figure that dwarfs the fiscal headroom Chancellor Rachel Reeves has built under Labour’s self‑imposed rules. With Brent crude hovering around $111 a barrel and the possibility of a $140 spike, households face rising utility bills while businesses confront higher input costs, eroding disposable income and profit margins.

9% and nudging the 2027 outlook to 1%.