UK Growth Forecast Upgraded By IMF, But Iran War Risks Cloud Outlook

UK growth forecast upgraded by IMF, but Iran war risks cloud outlook

The International Monetary Fund has raised the UK’s growth forecast for this year, but warned that the ongoing war in Iran could still weigh heavily on the economy and trigger renewed financial pressures. The IMF said the UK economy is now expected to expand by around 1.0% in 2026, up from a previous estimate of 0.8%, reflecting stronger-than-expected performance in early-year data and a more resilient services sector. However, it cautioned that the outlook remains fragile, with geopolitical instability particularly the war in Iran posing a major downside risk through higher energy prices, disrupted trade routes, and tighter financial conditions. The Fund warned that continued conflict in the Middle East could fuel inflationary pressures in the UK, especially through rising oil and gas costs, which would also affect household spending power and business investment decisions. It also said global uncertainty linked to the conflict could slow investment and hiring, as firms become more cautious about expansion amid volatile energy markets and supply chain disruptions. Despite the upgrade, the IMF urged the UK government to stick to its deficit reduction plans, arguing that fiscal discipline is necessary to maintain investor confidence during a period of global instability. Economists note that the UK’s outlook is being shaped by two opposing forces: stronger-than-expected domestic activity on one hand, and persistent external risks driven by geopolitical tensions on the other. The IMF added that inflation could remain elevated for longer if energy shocks linked to the Iran war persist, potentially forcing policymakers to keep interest rates higher than previously expected.