What specific economic impact does the NIESR forecast for the UK if the Iran war keeps oil prices high?

The NIESR forecasts inflation will rise to 3.8% over the next seven months, forcing the chancellor to find an extra £24bn by the end of the decade to maintain public services and real-terms welfare payments; it has cut its forecast for the chancellor’s budget spending headroom from just over £7bn to nearer £3bn; and it projects UK economic growth will slow to 1.1% this year and again in 2027, resulting in £28bn in lost growth over two years compared with January forecasts.

According to the NIESR, what is the recommended fiscal approach for the new UK government amid rising debt and inflation?

The NIESR warns against easing public finance strain by raising borrowing, calling it a mistake that would cause further strife in later years—especially during future health or economic shocks—and insists new commitments on defence or household support must be funded through taxation or savings elsewhere, not additional borrowing, to rebuild capacity to absorb future shocks and bring debt down.

Analysts Warn UK Budget Faces Difficult Trade-offs Amidst Iran War Oil Price Surge

Jul 29, 2026

NIESR warns the UK government faces severe budget pressures due to high oil prices and inflation driven by the Iran conflict. The thinktank predicts inflation could peak at 3.8% in early 2027, forcing significant spending adjustments.

theguardian

2026-07-29

Analysts Warn UK Budget Faces Difficult Trade-offs Amidst Iran War Oil Price Surge

Analysts Warn UK Budget Faces Difficult Trade-offs Amidst Iran War Oil Price Surge

FAQ