The International Monetary Fund is warning that the UK will suffer the sharpest cut to economic growth forecasts for large rich economies.
This is because of the continuing fallout from the Iran War.
The IMF is especially concerned at the UK’s exposure to the inflationary impact of the war.
As a result, the fund predicts that the UK economy is expected to grow by 0.8% in 2026, down from a previous projection of 1.3%.
Adam French, head of consumer finance at Moneyfacts, comments: “The longer the conflict in the Middle East wreaks havoc on global supply chains, the more it will damage household finances.
“The prospect of rates ticking upwards again will be unwelcome news for borrowers, but surging prices and nominal economic growth is financial ruinous for almost everyone.
“Prices in the UK have already risen by more than 28% since 2020.
“While history doesn’t always repeat, it often rhymes and a second energy shock of the decade threatens to further erode spending power and living standards in a cruel echo of 1970s style stagflation.
“That much-maligned decade was characterised by intense inflation which peaked at over 25%, high unemployment and industrial unrest.”
Susannah Streeter, chief investment strategist at the Wealth Club, adds: “The IMF downgrade is a fresh blow to Chancellor Rachel Reeves and the government’s elusive search for growth.
“The UK is set to be battered by hot oil prices, an energy bill crisis and a tightening of consumer spending.
“The economy was already flatlining even before war erupted in the Middle East, and now there is little means of resuscitation available given that interest rates look set to ramp up to curb inflation.
“One to two interest rate increases are now being priced into financial markets instead of the scary three to even four hikes temporarily forecast, but it’s still going to be tough going ahead if borrowing costs rise further.
“Plans for a big bang of home construction with 1.5 million new dwellings targeted by the government have turned into more of a whimper.”
