UK to ‘flirt’ with recession amid Iran War fallout – Daily Business

The Iran conflict is affecting the supply chain

Rising energy costs prompted by the Iran conflict could see the UK “flirt” with a technical recession, according to a new forecast.

No growth is expected in the second half of the year with inflation ticking up and growth flatlining.

The EY Item Club says GDP growth will fall from 1.4% last year to 0.7% in 2026, and reaching only 0.9% next year.

The impact of the squeeze on energy and the supply chain will see the UK’s unemployment rate hit 5.8% in the middle of next year, with 250,000 losing their jobs, according to the forecaster.

Its outlook follows renewed tensions in the Strait of Hormuz where President Trump said the US has intercepted and seized an Iran-flagged cargo ship.

He said he would target Iran’s bridges and power plants unless Iran agreed to the terms of a peacefire. Brent crude rose to just over $95 a barrel overnight.

The Strait remained closed on Sunday, a day after the Islamic Revolution Guard Corps (IRGC) said it was ending a temporary reopening over the US blockade, which it said violated the terms of their ceasefire agreement. Iran said it would stay closed until the US ended its naval blockade.

Matt Swannell, chief economic adviser to the Item Club, said: “Consumers’ spending power will be squeezed, while more expensive financing arrangements and a less certain global economic backdrop will pour cold water on companies’ investment plans.”

Inflation could almost double the Bank of England’s 2% target by the end of the year, although “a repeat of 2022” is not likely. However, the Bank’s governor last week said there was no rush to raise interest rate.

In separate research, EY said half of the 55 profit warnings from UK-listed businesses during the first quarter were largely attributed to geopolitical uncertainty, the highest proportion in more than 25 years of the firm’s analysis.

Warnings from the FTSE travel and leisure sector were at their highest for three and a half years, EY found.

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