What is the estimated economic impact on the UK from the Iran war, according to Niesr, and what are the key risks highlighted?

The National Institute of Economic and Social Research (Niesr) warns that the UK faces a £35bn economic hit and a heightened risk of recession this year due to fallout from the Iran war. It downgraded its 2026 GDP growth forecast by 0.5 percentage points to 0.9% and 2027’s by 0.3 percentage points to 1%, citing persistent energy price pressures. Under an adverse scenario where Brent crude reaches $140 per barrel — described as 'severe but plausible' — UK inflation could exceed 5%, prompting the Bank of England to raise interest rates by 1.5 percentage points in one move, the largest since Black Wednesday in 1992.

How does the Iran war affect Chancellor Rachel Reeves’s fiscal position and policy options?

Niesr states that the Iran war has created a 'multibillion-pound hole in the public finances' amid a worsening inflation shock, severely constraining Rachel Reeves’s ability to respond with fiscal support. The thinktank estimates the conflict could add nearly £24bn to UK government borrowing by the end of the decade — almost entirely erasing Reeves’s headroom against her self-imposed fiscal rules. While Reeves said 'nothing is off the table' regarding targeted, temporary support for households facing higher energy costs, Niesr underscores that the deteriorating fiscal position makes such interventions significantly harder to deliver without violating fiscal discipline.

UK Faces £35bn Economic Hit and Recession Risk Over Iran War Impact, Thinktank Warns

Apr 29, 2026

The National Institute of Economic and Social Research warns the UK economy faces a £35bn hit and recession risk due to the Iran war driving up energy costs and oil prices. Downgraded growth forecasts suggest potential inflation shocks if Brent crude hits $140 per barrel.

theguardian

2026-02-25

Goldman Sachs Raises 2026 Oil Price Forecast

2026-04-29

UK Faces £35bn Economic Hit and Recession Risk Over Iran War Impact, Thinktank Warns

2026-05-06

Goldman Sachs Raises Oil Price Forecast Again

2026-06-16

Citi Chief US Economist Defends Unpopular Fed Rate-Cut Call

2026-06-29

Oil prices edge higher on renewed US-Iran strikes in Mideast