National Institute of Economic and Social Research

Britain faces £35bn economic hit and recession risk from Iran war, warns Niesr

The National Institute of Economic and Social Research (Niesr) has warned Britain faces a £35bn economic hit and risk of recession this year due to the Middle East conflict. The thinktank downgraded its 2026 growth forecast by 0.5 percentage points to 0.9%, and 2027 by 0.3 points to 1%. Under an adverse scenario with oil at $140/barrel, UK inflation could exceed 5%, forcing the Bank of England to raise rates by 1.5% — the biggest single rise since 1992. Government borrowing could increase by almost £24bn by decade's end, nearly erasing Rachel Reeves's fiscal headroom.