Niesr said Prime Minister Andy Burnham will need to raise taxes or cut spending to pay for his defence and cost-of-living pledges. It warned inflation could stay higher for longer because of the Iran war and said interest rates may not fall until 2028.
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.
