Iran war will hit UK growth the hardest of any rich economies

Britain will take the biggest hit to growth among the world’s richest economies because of the Iran war, the International Monetary Fund warned on Tuesday.

In its latest World Economic Outlook report, the IMF predicted that the UK economy would grow by just 0.8% in 2026, down from a forecast of 1.3% in 2025.

This is the largest growth disruption of any G7 economy; The UK is set to lag behind the US, which is expected to grow by 2.3% in 2026, as well as the euro zone (1.1%), Spain (2.1%) and France (0.9%).

The IMF said the global economy now faces a major test as a result of the ongoing war in the Middle East after recovering from last year’s volatility in trade and tariffs. He warned that a protracted conflict could worsen the outlook, while rising public debt and the erosion of the credibility of institutions could cause further damage.

“A longer or broader conflict, worsening geopolitical fragmentation, a reassessment of AI-driven productivity prospects, or renewed trade tensions could significantly weaken growth and destabilize financial markets,” the IMF said.

“Promoting adaptability, maintaining credible policy frameworks and strengthening international cooperation are vital to cope with the current shock while preparing for future disruptions in an increasingly uncertain global environment.”