UK Economy at Risk as Prolonged Iran War Threatens Recession

A prolonged Iran war could push the UK into recession next year if the Strait of Hormuz remains closed, according to an economic report by EY. The firm's base case forecast suggests that GDP growth will slow sharply to 0.5% this year and contract by 0.2% in 2027 if the conflict continues.

The report warns that inflation could soar to 6.4% by the end of 2026 due to surging oil and energy prices, which would be a significant increase from the current 2.6% Consumer Prices Index (CPI) inflation rate.

Peter Arnold, EY UK chief economist, stated: 'The UK economy has proved more resilient than many expected this year, prompting a modest upgrade to our growth forecast.' However, he also noted that an extended closure of the Strait of Hormuz would raise inflation and could push the economy into contraction next year.