UK to ‘flirt’ with recession and 250,000 to lose jobs amid Iran war fallout, warn forecasters

Britain’s economy is expected to hover near recession territory in the coming months, with unemployment projected to rise sharply due to the ongoing conflict involving Iran. Economic forecasters from the Item Club predict the UK’s gross domestic product (GDP) will stagnate during the second and third quarters of this year, narrowly avoiding a technical recession defined by two consecutive quarters of GDP decline. The report downgraded the UK’s annual growth forecast to 0.7 per cent for 2025, significantly lower than the previously anticipated 1.4 per cent. Nearly 250,000 jobs are expected to be lost, pushing the unemployment rate to a peak of 5.8 per cent by mid-2027. The Item Club attributes the economic slowdown primarily to surging oil and energy prices, which are disrupting supply chains and dampening consumer spending power. Chief economic adviser Matt Swannell highlighted that rising energy costs and global uncertainty are curbing business investment and straining household finances. This downturn represents the most severe impact on the UK jobs market since the COVID-19 pandemic. The report also notes that despite inflation potentially reaching nearly 4 per cent in late 2026—almost double the Bank of England’s target—the Monetary Policy Committee is unlikely to raise interest rates further, signaling a cautious approach to monetary policy. The economic challenges stem from heightened geopolitical tensions following President Donald Trump’s aggressive stance against Iran, particularly over the strategic Strait of Hormuz, a vital global shipping route. The International Monetary Fund (IMF) has warned that the conflict could trigger a global recession and an unprecedented energy crisis, with the UK facing the largest growth downgrade among G7 nations. Although recent data showed stronger-than-expected GDP growth in early 2025, the full economic impact of the Iran conflict is expected to weigh heavily on the UK economy in the months ahead. This evolving situation underscores the vulnerability of the UK economy to external shocks, particularly energy price volatility and geopolitical instability. The forecasted rise in unemployment and subdued growth highlight the challenges policymakers face in balancing economic support with inflation control amid uncertain global conditions.