UK faces biggest hit to growth from Iran war of major economies, IMF says
UK Faces Largest Economic Growth Impact from Iran War Among Major Economies, IMF Warns
The International Monetary Fund (IMF) has highlighted that the UK will experience the most significant decline in growth among major advanced economies due to the ongoing Iran war. In its latest World Economic Outlook, the Fund revised its UK growth projection for 2025 downward to 0.8%, compared to the earlier 1.3% forecast issued in January before hostilities began.
Global Economic Uncertainty and Inflation Concerns
The IMF cited the war, restrained interest rate adjustments, and the prolonged effects of rising energy prices as primary factors for the downgrade. It also warned that the conflict could disrupt global economic stability, potentially leading to a recession if tensions persist. The Fund urged central banks to avoid hastily raising interest rates to combat inflation, stressing that rapid hikes might delay recovery.
“Reacting strongly to flexible commodity prices, when supply constraints are present only in the related sectors, brings down inflation fast but risks a recession later,” the IMF stated.
UK’s Economic Position and Inflation Outlook
The UK’s growth reduction of 0.5 percentage points marks the sharpest decline among G7 nations, positioning it as a mid-tier performer in 2025. The IMF noted that the UK, as a net energy importer, remains vulnerable to price fluctuations. However, it projected a rebound in 2026, with the UK regaining its status as the fastest-growing European economy in the G7, albeit at a slower pace of 1.3%.
The UK is also expected to face the highest inflation in the G7 this year, projected at 3.2%, followed by a moderation to 2.4% in 2027. This aligns with the OECD’s recent forecast, which identified the UK as the most affected G20 economy from the war’s impact.
Current inflation in the UK stood at 3% for the year to February, surpassing the Bank of England’s target of 2%. Analysts speculate that the central bank may increase interest rates later in 2025, though the IMF cautioned against premature action to prevent long-term economic setbacks.
Gulf Nations’ Economic Challenges and Recession Risk
Before the conflict, the IMF had anticipated improved economic prospects, citing reduced US trade tariffs and increased trade among China, Europe, and Canada. However, the war has shifted this outlook, threatening to derail global growth. Economies in the Gulf region, including Iran, Iraq, Qatar, and Bahrain, are projected to contract this year.
In severe scenarios, with oil prices averaging $110 per barrel this year and $125 next year, the IMF warned that a global recession could become a “close call” if energy and interest rates continue to rise. The Fund’s projections remain conditional on a swift resolution of the conflict by mid-2025, as prolonged uncertainty could further strain economic forecasts.