Prime Minister Andy Burnham and the chancellor have been shown internal modelling suggesting that if disruption to the Strait of Hormuz persists through the end of 2026, UK economic output could grow by as little as 0.3% in 2027. Treasury sources confirmed the figures to be accurate after they were first reported by Bloomberg on 12 August 2026.
Officials say such projections form part of routine contingency planning rather than a firm prediction, insisting that scenarios covering a wide range of outcomes are constantly reassessed.
The UK economy began 2026 strongly but lost momentum as the conflict in the Middle East began to weigh on businesses. Higher oil and fuel prices, combined with disrupted supply chains linked to the war, have been blamed for slowing activity in recent months. Official growth figures for the April-to-June period are due on Thursday, with economists forecasting expansion of around 0.4% for the quarter.
How does this compare with other recent forecasts?
The latest Treasury figures are notably gloomier than projections issued earlier in the summer. In July 2026, the International Monetary Fund raised its UK growth forecast to 1% for 2026, arguing that the economic drag from the Iran conflict was easing and that Britain remained the third-fastest-growing economy in the G7. That optimism has since faded: according to Bloomberg, newer Treasury modelling puts 2026 growth as low as 0.9% in a worst-case scenario in which the Strait of Hormuz remains badly disrupted and no lasting peace deal emerges before the new year. Separately, the National Institute of Economic and Social Research has estimated that the UK could lose £28bn in growth over two years compared with its January forecasts, downgrading expansion to 1.1% in both 2026 and 2027, according to reporting from late July 2026. The Organisation for Economic Co-operation and Development has also warned that renewed energy-price inflation tied to the conflict could slow UK GDP growth to 0.9% in 2026, down from 1.4% in 2025, according to market analysis published this month. Consultancy EY has gone further, warning that the UK could tip into recession if the strait remains closed for an extended period.
What is happening with interest rates and inflation?
The Bank of England kept interest rates on hold on 30 July 2026, saying it needed clearer evidence of how the Iran war would feed through into inflation before making its next move, according to . One policymaker voted for an interest rate rise after a temporary truce in the region collapsed. The National Institute of Economic and Social Research has forecast inflation averaging 3.1% in 2026 and peaking at 3.8% in February 2027, once energy price cap adjustments take effect, according to the same late-July report.
What happens next?
The Office for National Statistics is due to publish gross domestic product figures for April to June on Thursday, with economists pencilling in growth of roughly 0.4% for the quarter. Beyond that, the autumn budget is expected to be shaped heavily by the trade-offs created by higher oil prices and persistent inflation linked to the conflict, according to the same reporting from 29 July 2026.
Key Facts
- Treasury modelling shown to Andy Burnham suggests UK growth could be as low as 0.3% in 2027 if Strait of Hormuz disruption continues to the end of 2026.
- Newer Bloomberg-reported modelling puts 2026 growth as low as 0.9% in a worst-case scenario.
- The Bank of England held interest rates on 30 July 2026 amid uncertainty over inflation linked to the war.
- NIESR estimates a potential £28bn growth loss over two years and inflation peaking at 3.8% in February 2027.
- Official GDP figures for April to June are due on Thursday, with 0.4% growth expected.
