Britain has received the sharpest downgrade to its economic growth outlook among major advanced economies, according to the International Monetary Fund, largely due to the impact of the Iran conflict.
The IMF now forecasts UK growth of just 0.8% in 2026, down from a previous estimate of 1.3% — the biggest cut among Group of Seven nations. This leaves the UK on par with Germany and slightly behind France, while ranking lowest in the G7 on a per capita basis.
The downgrade reflects the economic shock from the U.S.-Israeli war with Iran, which drove a sharp rise in natural gas prices — a key vulnerability for the UK given its reliance on imports. The IMF also pointed to the likelihood of slower interest rate cuts by the Bank of England as inflation pressures persist.
The Fund warned that global growth forecasts could be revised further downward if the conflict continues.
UK Finance Minister Rachel Reeves criticised the U.S. approach to the conflict, describing it as lacking a clear strategy. She said the situation was already affecting households in the UK and beyond, as rising energy costs feed through into living expenses.
The economic setback also threatens the growth ambitions of Prime Minister Keir Starmer’s government, which has prioritised improving living standards.
The IMF added that unemployment in the UK is expected to rise to 5.6% this year, up from 4.9% in 2025, highlighting the broader economic pressures facing the country.
