The IMF has revised its forecast for UK growth this year down to 0.8%, from the 1.3% predicted in January before hostilities began – a downgrade of half a percentage point and the largest of any advanced economy.

The fund attributed the cut to the war itself, fewer anticipated interest rate reductions, and the expectation that elevated energy prices will persist into next year.

The IMF also cautioned that a prolonged conflict risks derailing the global economy, warning it could throw growth “off course” and potentially trigger a worldwide recession. Central banks, the IMF advised, should resist the temptation to raise interest rates too swiftly in response to rising inflation.

The revision echoes a similar assessment from the OECD, which last month predicted the UK would suffer the largest growth impact of any G20 economy from the Iran conflict. The IMF pointed to the UK’s status as a net energy importer as a key reason for its particular vulnerability to rapid increases in oil and gas prices.

Despite the near-term gloom, the fund expects the UK to rebound, projecting it will once again be the fastest-growing economy within the G7 by next year, albeit at a slightly reduced rate of 1.3%. That target aligns with the government’s stated ambition to lead G7 growth by the end of the current parliament.

On inflation, the UK is forecast to share the joint highest rate in the G7 this year, at 3.2%. The IMF expects inflation to climb temporarily towards 4% before returning to the Bank of England’s 2% target by end of 2027, as energy price pressures ease and a softening jobs market slows wage growth.

Chancellor Rachel Reeves acknowledged the economic toll, stating the conflict would “come at a cost to the UK,” whilst arguing the UK government had entered the situation from a position of relative stability. Her comments were notably at odds in tone with those of US Treasury Secretary Scott Bessent, who dismissed short-term forecasts and argued that brief economic pain was a worthwhile price for neutralising the threat of Iranian nuclear weapons.

A UK government spokesperson clarified there was “no assessment” that Iran had been attempting to target Europe with ballistic missiles.

Calls for government intervention, such as cutting fuel duty to ease pump prices, have grown louder. However, the IMF’s chief economist, Pierre-Olivier Gourinchas, urged caution against new support programmes, warning that the UK has significantly less fiscal headroom than before due to the war. Any assistance measures, he told the BBC, should stay “within the envelope” of existing spending limits.

The IMF’s projections carry a notable degree of caution given the uncertainty surrounding events in the Gulf, and are predicated on a relatively swift resolution to the conflict in the second half of the year.

The fund also noted that, prior to the war, it had been on the verge of upgrading global economic prospects, as US tariffs had come in lower than feared and other major economies had adapted by trading more amongst themselves.