WASHINGTON: The United Kingdom will suffer the largest economic decline of any major advanced economy as a result of the war with Iran, the International Monetary Fund warned Tuesday, slashing its 2026 growth forecast for the country to just 0.8%.
The projected figure, down from 1.3% in 2025, represents the steepest downgrade among Group of Seven economies, according to the IMF’s latest World Economic Outlook. The U.K. is now expected to lag far behind the United States, which is projected to grow 2.3% next year, as well as the euro area (1.1%), Spain (2.1%) and France (0.9%).
The global economy faces a “major test” from the ongoing Middle East conflict after weathering last year’s trade upheaval, the IMF said. A protracted war could further worsen the outlook, while rising public debt and eroding institutional credibility risk additional damage.
Global growth is now expected to reach about 3.1% this year — a “significant downgrade” from 3.4% in 2025, said Pierre-Olivier Gourinchas, the IMF’s chief economist. Inflation is forecast to rise to 4.4%, a sharp departure from earlier expectations.
Speaking at the IMF-World Bank spring meeting in Washington, Gourinchas said the U.S.-Iran war has halted global economic momentum, and central banks can do little about the supply shock because oil prices are set in the Gulf region.
“Raising interest rates or cutting them is not going to change that fact,” Gourinchas said. “So, to some extent, they can see it through, but only as long as inflation expectations remain well-anchored and there is no wage-price spiral that takes over.”
The IMF said worsening geopolitical fragmentation, reassessment of AI-driven productivity expectations or renewed trade tensions could further dent growth.
Even under best-case assumptions, the world faces lower growth and higher inflation, Gourinchas said. He outlined a worst-case scenario in which the conflict drags into 2027, potentially de-anchoring inflation expectations as households and companies push for higher wages and prices.
“That would take us into a whole different situation,” he said.
In that “severe” scenario, global growth would reach just 2% in 2026 and 2027, with inflation hitting 6% worldwide.
“2% global growth is a very low number, which has only happened four times since 1980,” Gourinchas said. “In two of these times we had severe crises — the Global Financial Crisis and COVID-19. This is not a situation that anyone would like.”