Could the Iran war put the UK into a recession in 2026?
What is a recession and could the UK be heading for the financial situation in 2026, as the International Monetary Fund posts warning about how Iran war might affect global economies?
The UK could suffer its biggest financial test since the pandemic in 2026, with the war in Iran threatening economies around the world, according to ecnomic experts.
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The situation in the Middle East, which has seen worldwide trade disrupted by the blockade of the Strait of Hormuz, has left the International Monetary Fund (IMF) wary of the threat of a recession.
Oil prices rose on Monday after the US seizure of an Iranian cargo ship threw the peace process into chaos, although Donald Trump is set to travel to Pakistan this week to potentially agree a ceasefire extension.
As a result, UK economic growth forecasts for the next two years have been slashed and inflation will be higher than previously expected, the International Monetary Fund (IMF) has warned.
British chancellor Rachel Reeves said the war “will come at a cost to the UK” following the IMF’s gloomy outlook.
But what is a recession and does the fighting mean the UK is now destined for one?
Could the UK go into a recession?
The independent forecasting group, the Item Group, has said Britain is to “flirt” with recession and unemployment will be sent soaring amid the fallout of the Iran war.
Their warning follows the IMF's statement last Tuesday that a global recession could be a “close call” in a severe scenario.
It stated that the UK is facing the biggest downgrade to growth among the G7 group of countries, with 0.8% forecast for 2026, down sharply from the 1.3% predicted in January.
But recent figures showed the UK economy had stronger-than-first thought momentum before the Iran war impact, with data showing GDP grew by 0.5% month-on-month in February – the fastest expansion since January 2024.
The Item Club said inflation is set to soar to almost 4% in the second half of 2026 – nearly double the Bank’s 2% target – but that Monetary Policy Committee (MPC) policymakers will hold off from knee-jerk hikes to interest rates.
When was the UK last in recession?
The UK has been hit by several recessions since the first was recorded in the 15th century.
Most recently, the Covid pandemic caused a decline over two quarters in 2020 and the aftermath of this led to another recession being recorded in 2023.
In 2008, the worldwide financial crash led to five successive quarters of decline in the UK, with similar lengths being on record in the early 1990s and early 1990s.