UK Economy Faces Grim Future Amid Strait of Hormuz Disruptions

The UK economy is expected to experience minimal growth in 2027 if disruptions to the Strait of Hormuz linked to the Iran war continue until the end of 2026. According to Treasury officials, internal modeling suggests that the country's GDP could grow as low as 0.3% next year.

This projection is based on a more extreme scenario and is part of routine planning by officials for all possible outcomes. The forecast comes amid modest growth in the UK economy, with the Office for National Statistics (ONS) expected to reveal that the country's GDP saw no growth in June.

The conflict in the Middle East has driven energy prices higher since February, affecting consumer sentiment and potentially impacting economic growth. In a more optimistic scenario, the UK economy could grow by 0.9% this year if there is no permanent peace deal between the US-Israeli forces and Iran.

Consumer Price Index (CPI) inflation could peak at 4.3% in the first quarter of next year, with disruption in the Strait of Hormuz likely to keep oil and gas prices elevated. The forecasts come ahead of further key economic data releases for Andy Burnham.