What's happened
The National Institute of Economic and Social Research warns that the Middle East crisis has already slowed UK growth and could push the economy into a recession this year, with inflation rising on energy shocks and the Bank of England expected to respond with rate hikes.
What's behind the headline?
Live assessment of the UK outlook
- The government has faced a sharper-than-expected drag on growth due to global energy shocks tied to the Middle East conflict, with NIESR revising down forecasts for 2026 and 2027.
- Inflation is expected to peak higher than previously forecast as energy prices stay elevated, pressuring households and businesses alike.
- The Bank of England is likely to respond with further rate increases if inflation remains stubbornly above target, potentially pushing mortgage costs higher.
- Even under a swift political resolution in the conflict, the economy will remain smaller than anticipated, constraining fiscal leeway for targeted support.
- The outlook hinges on energy prices and any easing of supply pressures; if Brent crude maintains elevated levels, UK growth will continue to lag and inflation will stay sticky, forcing a cautious monetary stance.
What readers should watch next
- Any fresh updates to NIESR forecasts as the conflict evolves
- Bank of England policy signaling ahead of the next decision
- Government announcements on targeted relief measures for energy-driven cost-of-living pressures
How we got here
NIESR has repeatedly warned that global energy shocks from the Iran–Israel–US conflict are driving higher energy costs and inflation in the UK. The latest projections show slower growth in 2026 and 2027, with potential for a recession in the second half of this year if energy prices remain elevated. The Bank of England is anticipated to adjust policy in response to rising inflation, while the government faces fiscal pressure amid a tightening energy market.
Our analysis
The Guardian reports that NIESR has downgraded UK growth for 2026 and warned of a potential recession if energy prices stay high, with inflation possibly exceeding 5% under severe scenarios. The Independent covers similar projections, noting potential rate rises to around 4% in July and up to 5.25% in a severe trajectory. Both sources attribute the outlook to energy shocks from the Middle East conflict and its impact on energy costs and inflation. Representative quotes include David Aikman and policy expectations from the Bank of England.
Go deeper
- What specific relief measures could the government implement to shield households from energy shocks?
- How might higher interest rates affect borrowers and renters in the coming months?
- Are there particular sectors that are likely to bear the brunt of slower growth or welcome any policy support?
More on these topics
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Iran - Country in the Middle East
Iran, also called Persia, and officially the Islamic Republic of Iran, is a country in Western Asia. It is bordered to the northwest by Armenia and Azerbaijan, to the north by the Caspian Sea, to the northeast by Turkmenistan, to the east by Afghanistan a
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United Kingdom - Country in Europe
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom or Britain, is a sovereign country located off the northwestern coast of the European mainland.
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Keir Starmer - Member of Parliament of the United Kingdom
Sir Keir Rodney Starmer KCB QC MP is a British politician and former lawyer who has served as Leader of the Labour Party and Leader of the Opposition since 2020. He has been Member of Parliament for Holborn and St Pancras since 2015.