UK faces £35bn hit and risk of recession this year over impact of Iran war, thinktank warns

Britain is facing a £35bn economic hit and the risk of a recession this year as the fallout from the Iran war adds to the pressure on Keir Starmer’s government, a leading thinktank has warned. The National Institute of Economic and Social Research (Niesr) said that even under a best-case scenario the UK economy would grow at a much slower pace this year and next because of the Middle East conflict. With households facing a rise in energy costs linked to the Iran war, the chancellor, Rachel Reeves, has said that “nothing is off the table” as the government considers options to provide a targeted and temporary support package. However, Britain’s oldest independent economic research institute said the government faced a multibillion-pound hole in the public finances amid a worsening inflation shock that would make it harder for Reeves to respond. David Aikman, the Niesr director, said: “This is a serious blow to the government’s mission to get the UK economy growing again. “The Middle East conflict has laid bare the fact that the UK remains highly exposed to global energy shocks. Even if hostilities ease rapidly, higher energy prices will leave households poorer, businesses facing higher costs, and the economy materially smaller than we expected only a few months ago.” In a downbeat assessment on Britain’s prospects as the war unfolds, Niesr downgraded its previous growth forecasts for 2026 by 0.5 percentage points, to 0.9%, and by 0.3 percentage points in 2027, to 1%. …