The United Kingdom has been warned it faces a recession in the second half of the year as the energy crisis stemming from the Iran war could reduce the economy by £35bn, even in an optimistic scenario, according to the National Institute of Economic and Social Research (Niesr).
Niesr warns of serious blow to growth
Niesr cautions that a prolonged conflict in the Middle East could plunge the UK into recession during the latter half of this year. David Aikman, Niesr's director, described the forecasts as a “serious blow” to the government's economic growth ambitions, highlighting the UK's vulnerability to global energy shocks.
Interest rates and inflation outlook
The Bank of England is anticipated to raise interest rates, with Niesr predicting a rise to 4% in July. If inflationary pressures from the conflict persist, rates could potentially reach 5.25%. Economic growth forecasts have been downgraded, and inflation is expected to peak at 4.1% in January. The think tank warns that inflation may not return to the 2% target until 2028.
The prime minister has warned of potential changes to shopping and holiday habits as a result of the economic pressures. The energy crisis is expected to have wide-ranging impacts on households and businesses across the UK.
