Households across the UK are facing a more severe cost of living increase over the next two years, triggered by the Iran conflict, according to a prominent organization’s warning. The International Monetary Fund (IMF) has significantly reduced its projections for UK economic growth, dealing a significant blow to Chancellor Rachel Reeves and the Labour party’s efforts to jumpstart the economy.
The IMF has outlined the grim repercussions of the Middle East crisis, cautioning that a global recession could be imminent in a worst-case scenario. Following recent attacks by US President Donald Trump and Israel on Iran, the IMF has downgraded its UK growth forecast for this year from 1.3% to 0.8%, and for next year from 1.5% to 1.3%. Additionally, inflation is anticipated to average 3.2% this year and 2.4% in the following year, marking a significant increase from previous estimates.
The ongoing rise in petrol and diesel prices, along with anticipated hikes in energy and food expenses, are exacerbating the financial strain on families. The IMF has also predicted a further increase in unemployment, with rates expected to rise to 5.6% in 2026.
The recent surge in oil and gas prices, attributed to attacks on key facilities and disruptions in energy transportation, has further compounded the economic challenges. Key political figures, including Chancellor Rachel Reeves and central bank leaders like Andrew Bailey from the Bank of England, are currently attending the annual IMF meeting in Washington.
The IMF’s latest economic outlook warns of potential global economic turmoil due to the outbreak of war. Economic counsellor Pierre-Olivier Gourinchas emphasized the sudden darkening of the global outlook, diverting the economy from its previous growth trajectory.
The IMF has highlighted a severe scenario where global growth could decline by 1.3 percentage points in 2026 due to the conflict. This would bring the global economy dangerously close to a recession, a situation that has occurred only a few times in recent decades, notably during the global financial crisis and the Covid-19 pandemic.
In response, Simon Pittaway, a senior economist at the Resolution Foundation, stressed the vulnerability of British households to the economic fallout from the Middle East conflict. He emphasized the need for the government to provide targeted support to safeguard vulnerable households while avoiding exacerbating inflation and straining public finances.
