UK Economy on Brink of Recession Amid Prolonged Iran War Threat

A prolonged Iran war could send Britain's economy into recession next year if the Strait of Hormuz remains closed until 2027, according to a report.

The latest EY economic outlook warned that gross domestic product (GDP) could slow sharply to 0.5% this year and contract by 0.2% in 2027 if the Middle East conflict is not resolved and the waterway remains shut until early or mid-2027.

This adverse scenario could see inflation soar to 6.4% by the end of 2026 due to surging oil and energy prices, the report cautioned.

However, if the Strait of Hormuz reopens by the end of the third quarter of this year, EY's base case forecast suggests growth will remain fairly resilient, with EY upgrading its outlook to 0.9% expansion in 2026 and maintaining its prediction for 1.2% growth in 2027.

Interest rates are expected to remain at 3.75% for the rest of 2026 and then be cut twice in April and July next year, ending 2027 at 3.25%, according to the report.