The International Monetary Fund has identified the United Kingdom as the advanced economy most susceptible to economic damage from the ongoing conflict involving Iran, according to its latest World Economic Outlook report.
In a significant revision, the IMF has slashed its UK growth forecast for this year to 0.8%, down from the 1.3% projection made in January before hostilities escalated. This half-percentage-point reduction represents the most substantial downgrade among major developed nations.
"The war threatens to throw the world economy off course," the IMF cautioned, adding that prolonged conflict could trigger a global recession.
The Fund attributed the UK's vulnerability to its status as a net energy importer, making it particularly sensitive to rapid spikes in energy prices. The downgrade also reflects expectations of fewer interest rate cuts and the persistent impact of elevated energy costs extending into next year.
Despite this year's challenges, the IMF anticipates a UK recovery in 2025, projecting it to regain its position as the fastest-growing economy among the smaller G7 group of advanced nations, albeit at a moderated 1.3% growth rate.
Inflation remains a concern, with the UK forecast to have the joint-highest inflation in the G7 this year at 3.2%, alongside the United States in 2026 and Italy in 2027. The IMF expects UK inflation to rise temporarily toward 4% this year before gradually returning to the Bank of England's 2% target by late 2027 as energy price effects diminish and labor market conditions ease wage pressures.
Chancellor Rachel Reeves acknowledged the economic toll, stating: "The war in Iran is not our war, but it will come at a cost to the UK. These are not costs I wanted, but they are costs we will have to respond to."
Contrasting perspectives emerged from international officials. US Treasury Secretary Scott Bessent defended the economic impact, telling the BBC that "a small bit of economic pain for weeks" was justified to eliminate the nuclear threat from Iran, adding: "I wonder what the hit to global GDP would be if a nuclear weapon hit London."
IMF Chief Economist Pierre-Olivier Gourinchas urged caution regarding fiscal interventions, noting that despite government efforts to rebuild financial buffers, "there isn't really a lot of room to go and spend in order to support households and businesses."
The report's projections assume a relatively swift resolution to the Gulf conflict by the second half of the year. In more severe scenarios—with oil prices averaging $110 per barrel this year and $125 next year, coupled with rising energy costs and interest rates—the IMF warned that a global recession would become "a close call."
Political reactions highlighted domestic divisions. Shadow Chancellor Sir Mel Stride blamed government policies for exacerbating the economic impact, while Liberal Democrat Treasury spokesperson Daisy Cooper called the downgrade "an indictment of Trump's idiotic war and all those who cheered it on."
The IMF emphasized that central banks should avoid premature interest rate hikes, warning that "reacting strongly to flexible commodity prices, when supply constraints are present only in related sectors, brings down inflation fast but risks a recession later."